For the next 24 months and perhaps longer, the most difficult and controversial decisions state officials face will be the effort to balance the state budget. With significant challenges in balancing the current FY03 budget front and center today, the FY04 budget looms with a deficit of over $2 billion. In that context, a clear picture of the role that spending and tax policies have played in contributing to the fiscal crisis is vital. This report examines spending trends in Massachusetts from a number of perspectives. It finds that contrary to the role spending played in the last fiscal crisis, spending growth in Massachusetts has been quite modest. Highlights of the report include the following.

Overall State Spending

• Massachusetts spends a smaller share of its total personal income on state and local services than most states; only five states spend less than Massachusetts in the overall measure. Moreover, the share of state resources dedicated to public services has fallen more here over the last two decades than in any state in the nation.
• While personal income rose at a rate of 2.6 percent annually from 1991 to 2002, after adjusting for inflation, the annual growth rate for state spending lagged behind, at 2.3 percent.
• The spending increase from 1991 to 2002 was just half the rate of growth experienced during the1980s, when inflation-adjusted spending grew at a rate of 4.7 percent. And while state spending grew faster than personal income during the 1980s, it grew more slowly than personal income during the 1990s.
• Massachusetts has fewer public employees than nearly any state in the nation and devotes a relatively small share of resources to paying their wages and benefits. Only three states spend a smaller share of personal income on public employees than does Massachusetts.
• Of the limited number of state and local employees in Massachusetts, a far greater percentage than in other states are the front line teachers, fire fighters, and police officers most valued by the public. Ignoring these front line workers, Massachusetts has fewer state and local workers than all but two states, 16 percent below the national average.

Spending Priorities

• Education, health care, and corrections account for 99 percent of new state spending during the 1990s. All other areas of the budget -- from the environment to human services to payments on the state debt -- account, on net, for the remaining one percent.
• Notwithstanding the spending increases associated with education reform, state and local K-12 education spending in Massachusetts, as a percent of personal income, ranks 49th in the nation; in 1979, Massachusetts ranked 7th. Between 1979 and 2000, education spending in Massachusetts fell from 19 percent above the national average to 16 percent below the national average.
• In the case of higher education, the very small growth between 1991 and 2002 followed deep cuts in the immediately preceding years. Anticipated FY03 spending on higher education is 11 percent below the real level of FY89.
• While spending on Medicaid accounts for 40 percent of the total increase in state spending between 1991 and 2002, it is important to recognize that the federal government covered nearly half of this increase through the federal Medicaid match.
• The state cost of creating the senior pharmacy program and expanding health care services to low-income children and families amounted to less than $400 million in 2002. This hardly explains continuing multi-billion dollar budget deficits.
• Cash assistance programs and housing programs experienced by far the deepest budget reductions, having been cut by over 60 percent since 1991, after adjusting for inflation. Other program areas that experienced more modest cuts include environmental programs, non-education local aid, and mental health.

Tax Cuts in Perspective

• In contrast to these spending increases, the state enacted 42 tax cuts amounting to $5.0 billion between 1991 and 2002. Even after factoring in the tobacco tax increases approved during the 1990s and package of tax increases enacted in 2002, the net tax change during this period drains the state treasury of $3.7 billion annually.
• This figure exceeds the amount Massachusetts committed to any other priority during the same period. It is more than twice the amount the state increased Chapter 70 education aid, and over four times the state's share of the increased cost of Medicaid.

This suggests, then, that tax increases to compensate for the overly ambitious tax cuts of the 1990s must be part of any solution to the state's fiscal crisis. To propose that the budget should be balanced by cutting programs, few of which grew to any significant degree during the 1990s and many of which have already been cut substantially, without reconsidering what in retrospect are the clearly unaffordable tax cuts of the 1990s, ignores the reality of budget decisions and priorities of the last decade.