Friday, April 15, 2011

The Top Things the Mass. FY12 House Budget DOESN'T Do

Much is being made of the FY2012 House budget plan, which was released to the public this week and will be debated later this month.

House leaders are focusing on what the budget does, including its spending cuts, increase in local education aid, and municipal health care reform. Some of those things are justifiably positive.

But, there are also many things that this year's state budget does not do and which are worthy of mention. Based on our quick review, here is our list of some of those things:

  • TAXES - One of the best parts of this budget plan is that it does not increase any broad-based taxes. We give House leaders credit for choosing not to increase taxes this year.

  • DEBT AND PENSION COSTS - The proposed 2012 budget does little to address serious structural problems in our state's fiscal management, most notably our high cost of general obligation debt service and our unfunded pension liability. As recently as November 2010, credit rating bureau Standard and Poor's noted that, in its opinion, "the commonwealth's high debt burden and significant unfunded pension and other postemployment benefit (OPEB) liabilities are offsetting considerations to [the state's AA credit rating]." The proposed budget increases debt service costs (0699-0015) by $254 million, or 15%, over last year. In addition, this year's transfer of funds to the state pension fund is up $36 million, or 2.5%, over last year; by FY2017, that number will be just shy of $2 billion. The budget also follows recommendations made by the Governor to extend the funding schedule for the pension fund out to 2040. Together, these two payments alone account for $3.36 billion in state spending, or more than one out of every ten cents our state will spend this year, and nearly as much money as we are spending on education aid to cities and towns.

  • RAINY DAY FUND - Credit agencies have repeatedly flagged ongoing depletion of our state's reserves to fund operating costs as cause for fiscal concern. Moody's Investor Service noted in 2010 that continued depletion without restoration of money as the economy improves would be cause for concern. However, as state officials trumpet improved revenue figures and employment numbers, and despite having spent hundreds of millions of dollars on other supplemental spending this year, state officials are not improving the condition of the Rainy Day Fund. Under their plan, in FY12 there will be another $200 million withdrawal from the Stabilization Fund to pay operating expenses, on top of cancelation of a $100 million statutory deposit into the fund.

  • CITIES AND TOWNS - House leaders are touting their plan to let cities and towns negotiate the cost of co-pays and deductibles (though not premiums) as part of their municipal health care plans without collective bargaining. This is an improvement, and this additional plan design ability will save money. Additionally, Chapter 70 school aid is increasing $119 million, and payment in lieu of tax (PILOT) funding is level-funded. However, there is a steep $65 million (7%) cut in unrestricted aid to cities and towns, which funds many municipal services. So, it is uncertain whether this budget, if adopted, would be a net improvement or a further setback to cities and towns, which have already seen their budgets cut sharply in recent years.

  • STRUCTURAL REFORM - Probably the biggest disappointment is that there is little, if any, structural reform in this budget. As expected, it's basically the same budget as last year, with a few numbers tweaked. Even the Governor's plan to eliminate public counsel services was generally not adopted. Especially in tight fiscal times like these, it's disappointing to see that there are not more ambitious efforts being made to streamline state government or consolidate state services. A newly-proposed grant to promote regionalization of municipal services is one bright spot in this area, but there is much more that could be done.

That's our take. What's your analysis of this budget? Please post a comment for us below and let us know.

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