Tip:
Highlight text to annotate it
X
GOVERNOR PATRICK: As you know, economic growth all across the country has slowed. While on
many measures Massachusetts is outperforming the nation as a whole, we have not been spared
the impact of the slowdown. State revenues were below expectations through October by
some $256 million. November results are in now, and I am pleased to report that collections
for the month are above benchmark; but not enough to cover the previous months' shortfall
or to convince me that there is no risk of additional revenue shortfall this fiscal year.
So today, after consulting with Secretary Gonzalez and our outside economists, we are
revising the FY13 revenue estimate downward by $540 million.
We have faced challenges like this before and have each time taken a balanced, fiscally
responsible approach to dealing with them. One such policy is to solve these gaps with
no more than half the solution coming from one-time, non-recurring resources. This policy
has served us well, and is one of the reasons the credit rating agencies have given us such
positive, consistent reviews. We will take that same approach now.
So, using my so-called 9C authority, I am today cutting Executive Branch spending by
$225 million or about 1%. What that means is that a number of new investments for FY13
projects and programs will be reduced or eliminated, across a range of government services. Secretary
Gonzalez will go over these specifics with you in as much detail as you want. Members
of the public can check on specific programs at www.mass.gov/anf.
But let me say now that there will be no reduction in Chapter 70 funding for our public schools.
About 700 planned and funded positions will be eliminated. This accounts for about $20
million of the savings. Implementation actually began with hiring controls that we imposed
in October. With these additional staffing cuts, the total state workforce will be down
more than 6,000 positions from pre-recession levels.
I am also filing legislation today for the authority to make a similar 1% reduction in
the budgets of the Judiciary, the Legislature, other Constitutional Officers and non-Executive
departments, for an additional savings of approximately $25 million, and a 1% across
the board reduction in unrestricted local aid, for a further savings of $9 million.
I should say in the latter case, if lottery proceeds exceed the amount currently budgeted
in this fiscal year, and they are on trend to do so, we are proposing that all excess
proceeds be committed to restoring unrestricted local aid.
In addition to the spending cuts, we propose to use $200 million from the Rainy Day Fund.
That is also consistent with our prior policy and still leaves a projected year-end balance
of $1.2 billion, one of the highest in the country.
Thanks to our high credit ratings, borrowing costs are below original estimates. Additionally,
the Health Connector Authority was even more successful than anticipated in cutting costs.
The savings in these accounts amount to $113 million. We propose to apply $20 million of
that to address the revenue shortfall, and the remainder to meet known but unforeseen
costs for such things as Hurricane Sandy and a caseload increase in homelessness programs.
This plan is a sensible and prudent way to deal with the impact on state revenues caused
by the recent slowdown in economic growth. And back upstairs, as I said, Secretary Gonzalez
will go into as much detail as you like about both November collections and the plan we’re
laying out to bring us in balance for this fiscal year.
But first, I want to add my voice to those calling for a comprehensive solution, by the
end of this calendar year, to the fiscal cliff. Because by all accounts, that uncertainty,
and the resulting slowdown in economic growth, is the direct cause of our budget challenges.
Economists agree that the fiscal cliff is keeping a tremendous amount of private capital
on the sidelines. Business leaders I meet confirm that fact. The private sector will
be unwilling to make the kind of investments that create jobs, grow state and federal tax
revenue collections and contribute to a lasting economic recovery until Congress and the President
come to terms on a solution. That solution should be balanced, with a combination of
tax increases on the most fortunate and cuts to federal spending. Many of those cuts can
be achieved by sensible reforms, including to programs like Medicaid and Medicare.
The cost of inaction is immense. If Congress fails to address the fiscal cliff, and the
sequester goes into effect, state budget resources could slip in Massachusetts by another $300
million this year, and by up to $1 billion next fiscal year. That result can and should
be avoided, for the sake not just of state and local governments but for all Americans.
Until then, we must act. Just as we have throughout the course of this administration, we face
our challenges together and we make choices. That's why Massachusetts has weathered the
global economic recession better than most other states, why our long-term fiscal footing
is strong, and why we have achieved the highest credit ratings in the state’s history. Even
with today’s adjustments, virtually all affected programs and services are receiving
no less funding than they did last year. And most important of all, we are still making
record investments in education, innovation and infrastructure – a proven strategy to
grow jobs, attract private sector investment and, above all, make Massachusetts better
for this generation and the one to come.
Like the ones before, the days ahead will be full of challenge and opportunity. Cutting
budges is no abstract exercise for me; I know and I see the people these decisions affect.
Still, I am confident that we’re up to this challenge and also ready to seize the opportunities.
I look forward to working with the Legislature to get prompt action on these measures and
thank the people throughout state government for sticking to their mission and sticking
by the people we all serve.
SECRETARY GONZALEZ: Thank you Governor. So thank you Governor. I’d like to just explain
the steps we’re taking today in a little more detail starting with the revision to
the FY13 tax revenue estimate. I think you all know the tax revenue collections are a
function of the economy. The more people are working and spending money and the more businesses
are growing and earning profits, the higher state income sales and corporate taxes will
be. Over the last few months the economy has been growing at a slower rate across the country
than we projected last December when we developed the tax revenue estimate for this fiscal year.
When we developed that estimate the economist told us we could assume 3% growth in the Massachusetts
economy. It’s been growing this year at a 1.9% growth, our baseline tax revenues have
only been growing at 1.6%. As a result through November, tax collections are up $23 million
compared to last year, so still better than last year, but they’re $235 million below
what the budget assumed. Based on our analysis of those tax collection trends to date and
updated economic forecasts that we’ve been looking at in consultation with DOR and other
economists, we are projecting today that we will end this fiscal year with $381 million
of tax revenue above last fiscal year but $515 million below what we assumed when we
developed the estimate last December. Consistent with past practice we have been monitoring
the economy and tax revenue collections closely, we’ve consulted regularly with economists
and the Department of Revenue to analyze state tax collections and updated economic forecasts
from local and national economists with expertise in forecasting. A couple of months ago based
on these forecasts and risks that we noted at the time, as the Governor mentioned we
put in place hiring controls, spending controls and we started to plan for the possibility
that we’re facing today. Although we gained a little ground in November, tax revenues
actually came in $21 million above the estimate for November. There is nothing in the tax
revenue collection results that suggest that there’s any change in the underlying economic
factors that are driving our lower than expected economic growth and tax revenue collections
over the course of the year. The bottom line is that we expect the economy and tax revenues
to grow and to continue to grow just not at the rate the budget assumed at the time that
we adopted the budget a few months ago. So pursuant to my legal responsibilities today
I officially notified the Governor and the Legislature of this determination and the
revised FY13 tax revenue estimate which is now $21.496 billion, $515 million below the
original budgetary estimate. I also notified the Governor and the Legislature that there
is a resulting FY13 budget shortfall of $540 million as the Governor mentioned, which consists
of the $515 reduction in revenues and the fact that that $25 million of the revenues
we’ve already received this year are one-time tax settlements that are already dedicated
to certain one-time costs. So $540 million budget shortfall that we are proposing to
solve today. And as the Governor said we’re proposing to solve it pursuant to fiscal policies
that we have put in place and that are prudent in ensuring that we solve any mid-year revenue
shortfall not more than half of it with one-time solutions like rainy day fund money and that
the other half be solved with recurring solutions that can help us address these challenges
in the years to come. One of the solutions the Governor didn’t mention because sales
tax revenues are coming in below the original estimate, the amount that automatically gets
transferred to the school building authority will go down by $20 million. That happens
automatically under law. Our understanding from the school building authority is that
this shouldn’t impact any of the planned projects that they are planning to move forward
with. And I also want to expand a little bit on the executive branch cuts that the Governor
mentioned, $225 million in total cuts using his authority under law to make emergency
spending reductions across the executive branch. That’s about 1% of total executive branch
spending, and it results in about $157 million in budgetary savings to apply against that
shortfall after we account for some loss of federal revenue that we won’t get, that
is usually just to match the spending that we’re now reducing. In making these cuts
we did our best to ensure that programs and services were funded at or above last year’s
levels. In addition to the savings the Governor mentioned from the hiring controls there are
a few different types of savings we achieve through the cuts. One is we looked at new
or expanded investments in the FY13 budgets and reduced or eliminated them. So an example,
there were a number of increased rates in the FY13 budget for certain hospitals who
provide services to people that we provide health insurance for through MassHealth and
other programs and we have reduced the level of increase in those rates, so they are still
getting an increase but we are achieving $52 million in savings by reducing the amount
of the increase to those hospitals and to managed care organizations that provide health
insurance coverage for some of our citizens. Special education, funding for special education
was increased in this year’s budget by $28 million, we are reducing it by $11 million
so there will still be a $17 million increase in special education funding. We have also
made certain reductions in areas where we know costs are going to be less. For example
there is a $1.3 million reduction in funding for veterans benefits, but that’s not because
we’re reducing benefits, it’s because the caseload levels that we’re now projecting
allow us to take $1.3 million in savings from that account without reducing benefits to
veterans. There are a few rare cases where funding levels are actually going down compared
to FY12. For example there is a municipal grant programs funded from a line item that’s
$14 million to fund innovation initiatives, regionalization initiatives, and some police
costs at the municipal level – we’re reducing that by $6 million. There also was $27 million
for increased nursing home rates provided in this year’s budget, and we’re reducing
that by $15 million. But those are a couple of a very few examples where funding levels
are actually going below FY12 levels. The Governor mentioned that we’re filing legislation
today asking all the non-executive branch agencies and constitutional officers like
the judiciary, legislature and others to also take a 1% reduction in their budgets – that
would save $25 million. And we’re also proposing a 1% reduction to unrestricted local aid which
would provide savings of $9 million. The Governor also mentioned that because of our low cost
of borrowing from our high credit ratings and we’ve been doing better than we thought
in controlling growth in health care costs that we actually have some savings we know
we’re going to achieve this fiscal year. It’s about $113 million from those areas.
We’re proposing to use $93 million of those amounts to fund some cost exposures we have
in areas where we’ve got caseload driven accounts where we have costs that are higher
than we assumed and some other costs that we didn’t count on but we know exist now
like costs for addressing some of the aftermath of Hurricane Sandy. So $93 million of those
savings will be used for those purposes and $20 million to help solve the remainder of
the shortfall from the revenue revision. We also have some additional federal revenue
in the amount of $98 million that we didn’t plan on that we know we can count on and $11
million from certain reserve funds surpluses that were counted on to solve the balance
of that shortfall. While we understand the challenges some of the required cuts will
cause for state agencies and the people they serve, the total FY13 budget still represents
an increase of FY12 and in virtually all cases the level of investment in programs and services
throughout state government is still at or above FY12 levels. And as the Governor mentioned
even after these budgetary adjustments we’re still making critical investments in education,
infrastructure and innovation necessary for long-term economic growth including the highest
level of K-12 investment in state history and a capital investment program that is double
the size it was when Governor Patrick took office.