Biz group: Delay ed and pension funding
Taxpayers Foundation calls budget most difficult in memory
State House News Service
DELAYING THE IMPLEMENTATION of a new school funding law and reducing a planned boost in state pension system contributions are among the ideas a business-based budget watchdog group is floating to help the state deal with budget stresses.
“It seems highly likely that the fiscal 2021 budget will be most difficult in recent memory,” Massachusetts Taxpayers Foundation President Eileen McAnneny wrote in a letter to Ways and Means Chairmen Sen. Michael Rodrigues and Aaron Michlewitz and Administration and Finance Secretary Michael Heffernan, the chief architects of the forthcoming fiscal 2021 budget. “Despite the incredible efforts made in recent years to improve the education funding formula, maintain our commitment to amortizing the unfunded pension obligation by fiscal 2037, and building up the Commonwealth’s ‘rainy day’ fund, you face an array of hard choices on these items and others as you work to balance the budget.”
Tax collections that lawmakers had hoped would propel big investments in education and transportation this year are now projected to fall by $4.4 billion, or 14.1 percent below the benchmark that top budget officials agreed to back in January as the economic and fiscal fallout from the COVID-19 pandemic “puts an unprecedented strain on the state’s budget and resources,” McAnneny’s organization told budget managers last month.
In its letter last week, MTF flagged “potential solutions and cautionary notes,” including making changes to the plan to begin implementing the Student Opportunity Act, which committed the state to $1.5 billion in new K-12 schools funding over seven years starting with fiscal year 2021. The law did not create a revenue source for the new funding and left it up to the Legislature to find and include the money in each year’s budget.
“Prior to COVID-19, education finance reform was on track to be the centerpiece of the fiscal 2021 budget,” McAnneny wrote. “After the fiscal impact of COVID-19, however, policymakers may need to modify the implementation schedule for this new law. For example, lawmakers may postpone the start of implementation until fiscal 2022, presumably after the crisis caused by the COVID-19 pandemic has abated.”
Estimates for the annual cost of the law ranged from about $300 million to $430 million.
MTF also suggested that lawmakers might deal with pandemic-induced budget stress by putting off another commitment they made. In January, legislative budget writers and the budget managers at the Executive Office of Administration and Finance agreed to make a $3.115 billion transfer to the pension fund in the fiscal year 2021 budget, an increase of $273 million or about 9.6 percent over the fiscal 2020 contribution to remain on track to fully fund the state’s expected pension liability of more than $96 billion by 2036.
“Reducing the pension payment has been used as a short-term cost-saving measure in the past and policymakers may choose to do so again; however, this strategy is not without risk,” MTF wrote. “This step would be viewed unfavorably by credit rating agencies that evaluate the state’s creditworthiness.”
The foundation also pointed out that federal aid “will be necessary to weather the present fiscal storm” but cautioned lawmakers against relying too much on the federal government and its non-recurring revenue for help.
“Over-reliance on federal funds may make fiscal 2021 easier but put the Commonwealth on course for even more painful tax hikes or spending cuts in future fiscal years. Similar risks are associated with using withdrawals from the ‘rainy day’ fund and lawmakers should tread carefully,” McAnneny wrote.
MTF said the next step in the fiscal 2021 budget process should be for Gov. Charlie Baker to send the Legislature amendments to the $44.6 billion budget bill he filed back in January, before the threat the new coronavirus and COVID-19 would pose to the state’s economy and society was fully known.
“Lawmakers will then have just a few weeks to develop a budget before fiscal 2021 begins on July 1,” McAnneny wrote. “We urge you to ensure that as much of this process occurs in public as is possible, including both public hearings and posting all relevant documents on the Internet in a user-friendly format.”
It remains unclear how the administration and Legislature plan to proceed with the fiscal year 2021 budget, which would have already passed through the House had the session not been slowed down by the pandemic. Legislative leaders have said the situation will require they take an unprecedented approach to budgeting, and there has been talk about a joint proposal emerging from the House and Senate Ways and Means committees.
In an April 20 bulletin, S&P Global Ratings wrote that the state is expected to adopt a new annual budget “this summer” and predicted the budget bill would adjust for a reduction in expected revenues “once Massachusetts has a better understanding of potential revenue losses by the second week of May.”
That timetable would require the adoption of interim budgets, which have been routinely adopted in the past.