States across the country have been facing unprecedented fiscal challenges since the global economic recession began in 2008. Tax revenues fell sharply and demand on state safety net programs increased to historic levels. This created huge budget gaps for state governments that have been closed with drastic cuts in services, new revenues, federal stimulus funds and other one-time resources.
Massachusetts has weathered this fiscal storm better than most other states. We have maintained our strong bond rating, with the rating agencies repeatedly noting our strong fiscal management. The Governor and the Legislature worked collaboratively and responsibly over the last few years to enact budgets that were on time and balanced and to make adjustments to budgets as necessary to ensure we live within our means. Tough but necessary decisions were made, thousands of state positions were eliminated, and state government – like families and businesses across the Commonwealth – found ways to do more with less.
Now, the Massachusetts economy is recovering faster and stronger than the rest of the nation, and tax revenues are steadily growing. This is good news.
We have a long way to go, however, to climb our way back to where we were before the recession. The tax revenue estimate for fiscal year 2012 is still about $900 million less than the tax revenue estimate supporting our original fiscal year 2009 budget – and fiscal year 2012 includes about $1 billion in new tax revenues from the 2009 sales tax increase. We also continue to face increased demand on our safety net programs as many citizens continue to need help. The most significant challenge we faced in developing this budget proposal, however, is the loss of about $1.5 billion in federal stimulus funds. For these reasons, fiscal year 2012 is a more challenging budget year than any other.
Early in the course of this recession, many in government said that the fiscal crisis presented an opportunity for change. We are now well beyond that – our fiscal challenges are now at the point where they demand change.
We must build on the reforms and efficiencies we implemented in Governor Patrick’s first term to change the way government does business and delivers services. We must stretch every taxpayer dollar as far as possible to preserve critical services that the people of Massachusetts expect, need and deserve.
This budget proposal reflects an ambitious reform agenda. We are reforming the way we purchase and pay for health care, implementing innovative and aggressive strategies to address what has historically been our most significant budget challenge. We are reforming our criminal justice system to reduce recidivism and costs in our corrections system, replace probation and parole with a consolidated department of re-entry and community supervision, and change the way we provide public counsel services to indigent defendants to save tens of millions of dollars. We are reforming our approach to addressing homelessness in a way that will stabilize more families in need with permanent housing at lower cost than shelters. We are reforming our pension system to make it sustainable and to preserve fair and reasonable benefits for state employees.
We are also reforming the way state government does business across the board – reforming back office functions to share services; reforming how we buy goods and services to maximize our purchasing power; reforming how we manage, maintain and dispose of state assets; and reforming how we not only deliver information technology services, but also how we use information technology to improve government services at lower cost, including through privatization. We are also taking aggressive steps to make government more accountable and transparent; to eliminate fraud, waste and abuse; and to fundamentally change the way government manages and budgets to improve outcomes and performance.
All of these reforms – and the many others proposed as part of this budget – will save taxpayers money in fiscal year 2012 and position state government to be more effective and efficient over the long term.
In addition to these reforms, there is much in this budget to be proud of in the context of the fiscal challenges we face. State funding for Chapter 70 education aid for K-12 schools is at the highest level ever. We have increased funding for programs that address the achievement gap, our most pressing challenge in education. We have preserved funding for programs that address youth violence and support youth-at-risk. We continue to invest in job creation, including supporting our ambitious capital investment program and maintaining our commitment to reduce the corporate tax rate to save businesses close to $200 million to invest in their own growth and create jobs. We continue to fund health care reform and to maintain eligibility and coverage for the low-income families, elderly and disabled residents who depend on state support for their health and well-being. We continue to maintain many programs and services throughout state government, and we are doing so without relying on new taxes or fee increases.
The news, however, is not all good. There is no way to avoid significant cuts to programs and services. We need to spend less next year than we are spending this year, and we simply do not have the resources to support the same level of services. This means cuts to local aid, higher education, the courts, and virtually every agency throughout state government. It means reductions in benefits to many of our most vulnerable populations. It means more parks will not be staffed and maintained; the condition of our roads will not be as good; and lines and waits for state services will be longer. It means hundreds of additional state positions will be eliminated. It means state government will be closing facilities and no longer providing certain services at all. All of this will have real impacts on people. While we have done everything possible to mitigate these impacts, they are simply unavoidable.
Although necessarily austere, this budget proposal is honest, transparent and fiscally responsible. There are no gimmicks or tricks. We are living within our means, and we are staying true to our generational responsibility by improving the state’s fiscal position for the long-term. This budget eliminates the structural deficit Governor Patrick inherited that was prolonged by the recession. It reduces our reliance on one-time resources from about $1.9 billion this fiscal year to just $385 million, only a little over 1% of the total budget and an amount that is sustainable and justified based on tax-revenue trends. We have proposed comprehensive pension reforms that will reduce pension costs for public employees by more than $5 billion over the next 30 years and will reduce retiree health benefit costs by more than $2 billion over the next 30 years. We are proposing to require that all one-time revenues from tax and litigation settlements exceeding $10 million be deposited in the state’s rainy day fund. And, at the end of fiscal year 2012, our most challenging budget year following three years of unprecedented fiscal challenges faced by the state, we will still have a healthy balance of $570 million in our rainy day fund. Our fiscal future will not be without challenges, but we will be better positioned for fiscal stability over time as a result of this budget proposal.
I want to thank Governor Patrick for his fiscal leadership. Governor Patrick approaches the budget process with a keen understanding of not only his fiscal responsibility, but also with an understanding that the budget is a statement of our values. The Governor understands that the budget is not a compilation of numbers on a page – he knows that there are people behind those numbers, people who depend on the budget for their health and well-being and for a brighter future. As a result, the Governor takes the budget process seriously; he invests a great deal of personal time, energy and emotion into the process; and he demands the best of all of us to develop a budget that is not only responsibly balanced, but that serves the best interests of the people of the Commonwealth.
I also want to thank Lieutenant Governor Murray and my colleagues on the Cabinet for their leadership and collaboration. They have all been personally engaged in the budget development process and have been critical contributors to ensuring we have a thoughtful and responsible budget proposal.
The Patrick-Murray Administration is fortunate to have strong fiscal partners in the legislature. Unlike many other states, the Administration and the legislature have worked collaboratively and responsibly to pass budgets that are balanced, on-time and fiscally responsible in the face of extraordinary fiscal challenges. I thank my colleagues, Chairman Steven Panagiotakos and Chairman Charles Murphy, as well as their staffs, for their partnership in managing the Commonwealth’s budget through these difficult times. I wish Chairman Panagiotakos a special thanks for his many years of valuable service to the Commonwealth and for his thoughtful, collaborative and good-natured approach – it was a pleasure working with him.
I also want to thank the Inter-Secretariat Budget Team that we established this year to assist A&F in developing creative budget solutions and reform initiatives. This Team was comprised of a representative from each secretariat who met at A&F three days a week for the last couple of months identifying and developing many innovative proposals, some of which are reflected in our budget proposal. Their energy, enthusiasm and dedication yielded not only positive results, but also a positive new dynamic to the budget development process. Tim Sullivan took a leave of absence from MassHousing to help lead the Team’s efforts, and the other members of the Team were Nick Martinelli, Jamey Tesler, Andrea Patstone, Jack Flynn, Bryan Jamele, Alethea Pieters, Stan McGee, Steven Clarke, Phil Griffiths and Joe Landolfi. Many thanks to all of them for their valuable contributions.
Lastly, I want to express deep appreciation, thanks and gratitude to my incredible team in the Executive Office of Administration and Finance for their work on this budget recommendation. I continue to be amazed by the enthusiasm, energy, creativity, diligence and dedication that they bring to their jobs each and every day. I am proud to be associated with all of them. Special thanks go to Undersecretary Matt Gorzkowicz and Budget Director Michael Esmond for their leadership.
Secretary of Administration and Finance