View from the Hill - Feb '07

from State Rep. Robert S. Hargraves

Even though the FY 2008 budget season is still in its infancy (the Governor's version of the budget is not due until the end of this month), there has already been a considerable amount of attention given to the revenue situation and its implications for the possible increase of state contributions to such programs as local aid. I have recently sent a letter to the Boards of Selectmen in each of my towns outlining the current views of House budget writers, and I believe it would be valuable to reproduce it here for a wider audience:

Dear Board Members:

Enclosed is a graphical presentation from the House Ways and Means Committee regarding various aspects of the Commonwealth's revenue collections, which I urge you to share with your finance committee. Ways and Means has also emphasized several points that I believe are deserving of your consideration:

• The Fiscal Year 2007 budget (FY07 GAA) appropriates $25.7 billion, an increase of 7.5% over the previous year, and is supported by growth in tax revenue that is likely attributable to another year of strong, double digit growth in capital gains collections;
• Although the House, Senate and Administration are still in the process of determining the consensus tax revenue number on which we will base our budget plans for FY08, it appears unlikely that the Commonwealth will again benefit from the type of economic growth necessary to afford an increase in operational spending at a rate similar to that of the current fiscal year;
• In order to simply maintain the services state government now provides at current levels, we would need to add over $1.1 billion in new spending in FY08. If you assume a 3% growth in tax revenues (which is within the range of projections offered at the consensus tax revenue hearing), even on a moderately aggressive projected FY07 tax base, that growth would only yield $398 million, leaving us with a projected structural deficit of nearly $800 million before any discussion of new initiatives.

To state the obvious, the numbers above pose a significant problem. While Ways and Means will bring all its powers to bear on this situation in an effort to reduce the gap between available means and funding expectations, every community must understand that the furnace of our economy is simply not going to burn this year with the level of intensity it demonstrated over the last three. Therefore, we can no longer assume we will be able to increase spending at the same levels we have in recent years and have those increases supported by strong revenue growth.

As leaders and as representatives of our communities, we must heed this lesson and not allow to pass unnoticed the fact that many of the same factors which led to the significant spending cuts of 2003 are once again rearing their ugly heads. Reliance on volatile capital gains taxes to support recurring spending, drawing on stabilization funds during times of economic recovery, and a growing divide between expectations and the reality of available resources all point to potential problems on the horizon. Working together, I am confident we can overcome what we face, but it will no doubt take the input and energy of all to accomplish this imperative goal.

As always, stay tuned.

Finally, I would like to remind those constituents who communicate with our office via e-mail (rep.roberthargraves@hou.state.ma.us) to please include their mailing address and telephone number within the body of the message.