The state budget for the fiscal year that begins July 1 got the lion’s share of attention at Friday’s Franklin County Chamber of Commerce legislative breakfast — especially because the dramatic drop-off in state revenue projections in the last couple of weeks has meant significant cuts in House and Senate versions of a spending plan.
A more modest budget will need to be hammered out in a conference committee in the remaining five weeks of the legislative session.
With income tax revenues and especially capital gains taxes “gone soft,” Senate President Stanley Rosenberg, D-Amherst, told the breakfast gathering of about 135 at Stoneleigh-Burnham School that the Baker administration will have to close a roughly $300 million budget gap in the last two weeks of this year’s budget, with a “much bigger problem” of between $450 and $750 million shortfall in what was expected to be $1.1 billion capital gains revenues.
“There are some very significant problems to deal with this year, so the budget is going to be pretty ugly this year,” Rosenberg said. “It’s not going to be a pretty picture, but we’ll do the best we can.”
Rosenberg admitted, “It’s rare that we find ourselves in this particular situation,” since “we were pretty conservative in our estimation of revenue. Since both branches had written their budgets, we’re working in a situation where we’re going to have to make very deep cuts in — let’s just say this: There will be a lot of level-funded and some cut line items.”
Rep. Stephen Kulik, D-Worthington, who as vice chairman of the House Ways and Means Committee is on the six-member committee that is working to reconcile House and Senate budget versions in the face of the new reality, said it “may take a little bit longer” than the June 30 target date the Legislature has for trying to complete its work on a budget.
Helping the situation is the “excellent working relationship” between the two Democratically controlled legislative branches and the Republican governor.
State House News Service reported on Thursday that the House and Senate had sent a short-term $5.3 billion budget bill to Gov. Charlie Baker’s desk, giving some breathing room to the six-member legislative conference committee struggling to assemble the fiscal 2017 spending plan in the face of the revised revenue projections. The temporary budget will keep state accounts funded through July, the first month of fiscal 2017.
Kulik said that in its “consensus revenue planning” approach earlier this year, legislative leaders heard from economists and financial experts to expect 14.3 percent revenue growth for the coming year, equaling about $1.1 billion. The budgets, completed at the end of May, were pegged at a more conservative 3.8 percent growth figure, but with investors selling off at a higher and faster rate than anticipated, capital gains revenue is down and is expected to remain down into the future, according to Kulik.
“We may not hit that target number for years, we’re being told by the association of certified public accountants,” said Kulik.
But he said that budget negotiators are “very mindful of the programs that are very important to you, and we’ll preserve as much as we can, especially education programs, funding to fight opioid addictions and local aid for cities and towns, which prepared their own budgets based on projections they were given by the state months ago.
“In the context of a $39.5 billion budget, it should be something we can judiciously manage,” said Kulik, without drawing down the state’s $1.4 billion “rainy day” fund. That reserve fund, which had been at $2.3 billion at the start of the recession, is one of the elements used by Wall Street in issuing bond ratings, which in turn help keep interest rates low for towns that need to borrow.
“We don’t want to rely on one-time revenue sources,” Kulik said. “The bottom line is we want to live with our means. We’re going to have to do that.”
Rosenberg told radio station WBUR in Boston on Thursday, “The whole discretionary portion of the budget is what’s on the table, everything from the environment to the courts to public safety, state public safety not local public safety, public higher education, almost all the health and human services stuff outside Medicaid and that sort of stuff.”
Also attending Friday’s legislative breakfast were outgoing Sen. Benjamin Downing, D-Pittsfield, as well as Reps. Paul Mark, D-Peru, and Susannah Whipps Lee, R-Athol.