What’s wrong with the state budget?

From the Massachusetts Nurse Newsletter
June 2009 Edition

By Leo Maley,
Region 1 Community Organizer
and
Andi Mullin,
Director, Division of Legislation and Government Affairs

Every week seems to bring additional bad news about the economy in general, and the Massachusetts state budget in particular. We are in the middle of a severe global economic recession, and it already has had a profound effect on the ability of state and local governments across the United States to provide the public goods—the schools, libraries, public health services, public safety resources, roads and countless other services—that we all depend on to maintain our quality of life. But here in Massachusetts, our state budget problems seem particularly dire.

Revenues available to fund critical public services are declining in Massachusetts at an unprecedented rate. Massachusetts’ revenues declined 35 percent this April as compared to last April. For the full fiscal year, which ends on June 30, we are looking at the state bringing in $3 to $5 billion less than was budgeted. This is the steepest revenue decline and the greatest revenue shortfall in state history. Why is this problem so severe in Massachusetts?

The assumption is that we spend too much, that state government is wasteful. But the  facts velie that. From 1998 to 2008 state spending (as a percent of total personal income) actually decreased from 6.9 to 6.6 percent.

If the problem isn’t spending, what is it?

The answer is that the commonwealth is simply not bringing in enough revenue. In other words, we are not raising enough tax revenue.

But aren’t taxes in Massachusetts too high? Aren’t we “Taxachusetts?” Aren’t Massachusetts politicians always raising our taxes?

The short answers are no, no and no.

The best way to compare tax rates between states is to look at the percentage of a state’s total income (personal income) that is raised by local and state taxes. Back in the mid-1970s, Massachusetts was indeed a high-tax state. We were third highest in 1977-78, with a total combined state and local tax rate 2.5 percent higher than the then national average. We are now in the bottom third of states when it comes to total state and local taxes, coming in below the national average. We were once a high-tax state. We are now a low-tax state. What happened?

Proposition 2 ½ passed in 1980 capping local property tax increases. The state legislature has also cut taxes again and again—42 times throughout the 1990s. The income tax was reduced from 5.95 to 5.3 percent. The tax rate on interest and dividend income was cut by more than half. Corporate taxes were cut for industry after industry.

These cuts were not nominal, and they have left the state with inadequate funding to support existing state services and to pay for basic public goods such as roads and bridges. Indeed, the state was looking at an annual $3 billion dollar shortfall before the current economic downturn. So while the recession has certainly worsened the problem, the Massachusetts budget problem actually transcends the recession. We are simply not raising enough revenue.

As we confront the coming budget cuts and the necessity to raise additional state revenues, it is important for us to let our state legislators know that we support them when they take a politically difficult vote to raise taxes in order to avoid cutting funding for health care and other services. As this article goes to press, the House of Representatives and Senate have approved a sales tax increase. The MNA is following this debate closely and making the case for increased revenues to fund healthcare and other services at an adequate level.

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