Overview
The severe national recession has made the Fiscal Year 2010 budget process unusually challenging, both substantively and procedurally. Because the current baseline tax revenue estimate for FY 2010 is $3.4 billion below the tax revenue estimate on which the FY 2009 budget was built, the state faces extraordinary fiscal pressures. Absent tax or spending changes, the cost of maintaining current services in FY 2010 would be approximately $5 billion more than the recurring revenue that will be available to finance the state budget. This $5 billion budget gap is forcing major spending cuts, tax and fee increases, and the use of federal stimulus aid provided in the American Recovery and Reinvestment Act (ARRA).
The final budget could include close to $2.5 billion in budget cuts and other spending reductions affecting everything from education and local aid, to health care and human services. There will likely be between $700 million and $800 million in new tax revenue, primarily from a sales tax increase ($275 million of which will be used to address deficits at the MBTA and Massachusetts Turnpike). There will also be approximately $1.5 billion to $1.6 billion in new federal revenues associated with the ARRA, and anywhere from $150 million to $220 million in new fees, and possibly more. In addition, the final budget is likely to use revenue from the state stabilization fund. This Budget Monitor outlines the options before the legislative Conference Committee as it seeks to determine what to cut and which new revenues should be available to protect both state and local services.
The continued weakening of the national economy has required budget writers to try to aim at a moving target. On top of the substantive challenges associated with filling a $5 billion budget gap, the timing of the state’s budget process has created some unusual procedural challenges. The Governor first proposed his budget in January, before the ultimate extent of the impact of the national recession on the state’s treasury was known. In February, and in time for the budget deliberations in the House, Congress passed the federal stimulus bill. This gave the Commonwealth over $800 million in additional new federal revenue above the amount the Governor had counted on when he first proposed House 1. Shortly after the House passed its final budget in April, new tax revenue estimates were announced in response to declining tax receipts. These projections are $1.5 billion less than the prior estimates. Accordingly, the Senate crafted its budget on a totally different set of revenue estimates than did either the House or the Governor.
Another unusual procedural step this year is that the Governor was required, in response to the declining revenue estimates, to submit a revised budget. While the Governor usually presents one budget proposal, this year he has essentially offered three: House 1 in January; an amended House 1 when the federal stimulus funding was announced, which spent $830 million of those new revenues (mostly reversing cuts proposed in House 1); and a revised House 1 in May that reflects the new, $1.5 billion lower tax revenue estimate. This revised House 1 cuts $1.54 billion in spending from his amended proposal, and $707 million from the original House 1 proposal he had presented in January.
This Budget Monitor describes the House and Senate proposals that are currently before the Conference Committee. It also provides information about the Governor’s revised budget proposal, including how that compares to House 1 and to the House and Senate proposals. Readers who are interested in additional data on the budget proposals can examine the numbers with MassBudget’s online Budget Browser.
Staff
