The state will have limited resources available to it as it crafts the FY 2011 budget. One option is to continue to dip into the temporary sources that will still be available in FY 2011; a second is that Congress passes another fiscal relief bill; and the third is to lower spending, or raise taxes, or both.
Federal Temporary Revenue
- The state will have available approximately $635 million in Enhanced Medicaid Reimbursements and Temporary Assistance to Needy Families (TANF) Emergency funds from ARRA. This is about half of the amount the state is anticipating in FY 2010 (this ARRA funding expires half way through FY 2011).
- The state will have available up to $177 million in Federal Fiscal Stabilization Funds from ARRA (this is funding targeted primarily at education). Massachusetts spent $411 from this source in FY 2009, and has budgeted to spend $323 million in FY 2010. If tax revenue fails to meet projections for FY 2010, it is likely that some or all of the remaining $177 million will be spent this year.
State Reserves
- At the end of FY 2010, the balance in the state Stabilization Fund will be approximately $561 million, unless there are withdrawals or deposits other than those currently anticipated. There are no other significant state reserves.
Together these temporary sources could provide up to $1.37 billion. It would be risky, however, to assume that the FY 2011 budget will be able to spend that much from these temporary sources. Some of these funds could be depleted in FY 2010. Moreover, even with strong economic growth in FY 2012, the state will still face a budget gap in that year and may need funds from the state’s reserves to help fill that gap.
Additional Federal Relief
The challenges facing Massachusetts are fairly typical of state budget problems across the country.4 To avoid a new round of severe budget cuts and significant tax increases, the federal government could provide additional state fiscal relief. This would help protect the national recovery by reducing the need for states to pursue fiscal policies that would harm the economy by reducing individual or public spending (as a result of tax increases and budget cuts). It would also allow states to protect vulnerable populations at a time when unemployment may be peaking.
Spending Cuts and Tax Increases
The FY 2011 budget process will force the state to make additional difficult choices. It is unlikely that economic growth or the ability to use reserve funds will allow the state to balance the FY 2011 budget without reducing spending or identifying new revenue sources, or both. Budget writers will need to examine every area of state spending, including appropriations in the budget and the money the state spends on tax expenditures.5 Readers interested in examining current spending and trends over the past ten years in each category and subcategory of the budget can do so using MassBudget’s on-line Budget Browser at http://browser.massbudget.org/. Information about taxes can be found on the Browser website under Information on Massachusetts State Revenues (Click here) or on MassBudget’s web site at MassBudget publications on taxes (Click here).
Projections for FY 2012
It is impossible to make accurate projections two years into the future. If the economic recovery is weak or the nation falls back into recession, the fiscal condition in FY 2012 would be dire. Even in the best of circumstances, however, the state will face significant challenges in balancing its FY 2012 budget. If, as may be necessary, the state relies on a billion dollars or more of federal ARRA revenue and its own reserves, in FY 2011, then FY2012 could be even more challenging as both of those sources would likely be almost entirely exhausted. As many other states will likely be in similar conditions, Congress could act to provide additional fiscal relief, otherwise the stat e will face very difficult choices.
As the Commonwealth continues to face severe long-term fiscal challenges as a result of the large tax cuts of the late 1990s,6 ultimately the state will need to examine in a comprehensive manner the quality of services residents want their government to provide and the fairest way to fund needed services.
Staff
previous