Governor Deval L. Patrick
Budget Address
February 27, 2007
As Delivered

On behalf of the Lieutenant Governor and the members of the Cabinet and staff who are here this evening, thanks to all of you for coming out this evening.

It is wonderful to be back in this glorious hall.

Tim Murray and I came to office with a mandate to strengthen our economy, our communities and our government - not just to meet the challenges we face today but to ensure that this generation and the next are able to meet the challenges to come.

Our first budget request, which we submit to the Legislature tomorrow, is a blueprint for reaching those goals. Taken together with initiatives we have already proposed - as well as plans coming soon for education and transportation reform - we are building a foundation for lasting change and meaningful progress.

And we had better get on with it. Because Massachusetts is at a crossroads.

We are a great state. We have a tradition of innovation and entrepreneurial leadership, a concentration of brainpower and venture capital, wonderful cultural attractions, beautiful land- and seascapes, and remarkable people.

But yesterday's greatness will not assure tomorrow's. Corporate and political history is littered with the carcasses of great companies - like Wang or DEC and RCA - and great states -I won't name - who made the mistake of thinking they could fuel their future on the fumes of their past.

Whether in Melrose or anywhere else in the Commonwealth, we need to face the plain fact that the same old thing is not enough to move us forward today.

I think you know this. I think most people do. I was at a National Governors conference this past weekend in Washington, D.C. and a presenter stood in front of us, governors from all over the country, and he asked by a show of hands how many of us believed that our standard of living was better than our parents'. And almost all hands in the room went up.

Then he asked how many of us felt certain that our children would have a better standard of living than we do. Nowhere near as many hands went up. We know that we have got to get on a different course if we're going to move Massachusetts forward.

What we need today I believe is a spirit of active collaboration, between government, business, labor, universities, the medical and research community, non-profits, neighborhood groups. We need a new spirit of active and civic responsibility, less about party politics and more about problem solving, less about the status quo and yesterday, and more about innovation and tomorrow.

And we had better start by being clear-eyed and candid about our challenges.

To start with, we are losing population -- the only state in the nation to have lost population in each of the last two years. Most of those leaving are young and well-educated- a very important part of our future is walking right out the door. They leave for one well documented reason, which is the high cost of housing.

We are facing competition not just from communities in Connecticut, Rhode Island or New Hampshire, but places like Lahore and Shanghai and Buenos Aires. And sometimes jobs go to such places not because labor is cheaper, but because it's better prepared. That's education. Or because the roads are intact. And because you can do things like have a cell phone call while driving and not have to reconnect every few hundred feet.

The point is that in places where we compete for business investment today, public investment in the infrastructure is considered wise. But we have been starving our own.

Another challenge we face is the need to govern for our long-term interests, even if they don't have a short-term political payoff or if they risk short-term political resistance.

All over the Commonwealth, we are at the confluence of significant challenges. They cry out for an ambitious agenda, and we have one.

The Lieutenant Governor and I have a strategy for spirited economic growth, for the next phase of education reform, pre-K through public colleges and universities, and for making health care accessible to all at a price we can all afford. Our budget is a chapter in that story, not the whole story.

Developing this budget has been a challenge. As we began our work last month, we realized that instead of the $1 billion surplus as we have been told, we faced a $1.3 billion deficit. The deficit results from a combination of things: low revenue growth; dramatic increases in health care costs, and spending commitments carried over from last year. My team and I have poured over this budget, line item by line item - because we understand that behind every dollar is a human being, a program vital to somebody or somebody's job.

Through a series of tough choices and creative solutions, we have closed that budget gap. But we also proposed significant, targeted investments to return to us the very strength in our economy, our communities and our government that you elected us to deliver.

Tomorrow we will submit a $26.7 billion budget request for Fiscal Year 2008. And that budget is balanced and responsible. [applause] We used a conservative revenue forecast to be doubly sure that we are working within our means.

We've held spending growth to about 1%, lower than the anticipated growth in revenue and a sharp reduction from the growth of the previous year.

We have identified savings and efficiencies in excess of $950 million -- and we are just getting started. And we have invested in our people and our economy because without well-prepared people and strong companies, large and small, we cannot secure our long-term future.

This budget is balanced without gimmicks. We didn't defer difficult decisions. We didn't use band-aids to treat symptoms and ignore root causes. We didn't square our ledger with under-the-radar fee increases. And we didn't meet our obligations by shifting the financial burden onto cities and towns or public schools or poor people. What we did, what we did was look at our situation candidly, and set out to set it right - right now.

This budget lays the foundation for the Commonwealth's long-term fiscal health by Strengthening Our Economy; Strengthening Our Communities; and Strengthening our Government. Here's how.

STRENGTHENING OUR ECONOMY
Strengthening the economy means more and better jobs. Let me acknowledge at the outset business, not government, creates jobs, I know that. But I do believe that there are things government can and must do to create the right conditions for job growth.

The first is for government to move at the speed of business. We are committed to deciding on state approvals and permits within 6 months, faster whenever we can. One leader in the insurance industry told me it takes 2 months for the commission in another state to approve new products as compared to 6 months here. Well, not any more. We've gone right at that.

We have put in place a new standard of one-stop shopping for businesses in need of state approvals. As our newly-appointed permitting ombudsman, Greg Bialecki serves as that one stop. And we have proposed to spend $4 million in incentives for local communities to streamline your permitting, too, continuing an initiative introduced in last year's economic stimulus bill.

The second thing state government can do is work proactively to attract new business. So, our budget consolidates $3.5 million in funding for Business Development with a Sales Team whose job it is to encourage new business development.

Our budget also supports an initiative to provide $2 million in grants to help community development organizations and small businesses get off the ground. I am pleased to announce that MassDevelopment, a quasi-independent agency, has agreed to provide an additional $5 million in capital for new small businesses, too.

These programs recognize that most new jobs are created by small businesses, and that we want small businesses to make it in Massachusetts, too.

The third and most important thing government can do to ensure lasting economic success is to provide a world-class public education: one that helps prepare our children for the economies of their future.

So our budget will increase funding for education by an additional $200 million. Next year, the state will invest a record $3.7 billion in public education. Resources in every single public school in Massachusetts will increase.

We will enable up to 800 new all-day Kindergarten programs to give 12,000 to 15,000 students the proven advantage of strong beginnings. This investment of $39.6 million represents a 46% increase in funding for full-day kindergarten classes next year, and will pay returns throughout this generation and the next.

We also propose to double allocations for grants to support after-school programs and extended learning time, so that we create the conditions for teachers to add enrichment programs, math and science preparation and provide a safe, engaged after-school environment for kids all across the Commonwealth.

The fastest growing cost to businesses - not to mention individuals and government - is health care. Health care costs consume almost 40% of our state budget and are growing at three times the rate of inflation.

Strengthening our economy - and every family - means making good on the promise of health care reform.

I am proud to say that our budget fully funds the next phase of implementation. We have already expanded coverage to an additional 100,000 residents who were once without insurance and have written into this budget coverage for 150,000 more. By investing in prevention and covering the uninsured we have been able to reduce funding for the uninsured by over $255 million.

Highlights of those preventative measures include:

- expanding the Universal Immunization Program to better protect children from rotavirus, which kills a child a minute worldwide and offering vaccines for Human Papilloma Virus to over 72,000 young girls to protect them from the risk of cervical cancer; - investing more than $20 million in Health Promotion and Disease Prevention Programs; - and increasing funding for Early Intervention Programs by nearly $4 million to expand access to therapy for children under three who suffer from developmental disabilities and delays like autism. [applause]

Now what, what does this all mean in human terms? It means that half the people who are uninsured today will be insured by 2008, and that we can afford that. And we move one step closer to a truly universal, affordable, accessible health care system.

STRENGTHENING OUR COMMUNITIES
This budget strengthens our communities as well. We have not closed the budget deficit by cutting local aid, which would increase the already significant pressure on local property taxes. I have enough of meeting seniors and young families alike who are worried that property taxes will squeeze them right out of their homes, people like Richard and Kathleen Sears in Paxton, a couple in their eighties, who have gone back to work in the cafeteria of the local college so that they can raise what they need to meet their property tax bill.

For immediate and direct relief, our budget this year proposes to extend the Senior Circuit Breaker program to homeowners regardless of age, lowering property taxes for an additional 100,000 households and cutting the average property tax bill by 25 percent. That's up to $870 [applause]- That can mean up to $870 in savings per qualified household.

To take the squeeze off of cities and towns, our new budget continues the effort to restore local aid, including $77 million to build new schools.

Our Municipal Partnership Act, which we filed a couple of weeks ago, provides investment and savings options too, like opening the state's Group Insurance program to municipal workers, and allowing better returns for retirees through state pension funds. Options like a 1 or 2 percent tax on meals or hotels, not required by the state but as you choose, as you see fit in your local community - so long as you use at least 25 cents of every dollar collected to fund direct property tax reductions for homeowners.

To address the safety of neighborhood streets, this year we launch our program to put 1,000 new cops in community patrols throughout the state. We will begin with $33.6 million for public safety programs, including the hiring and training of up to 250 new police officers in the next fiscal year. We have set aside $2 million for year-round job opportunities for at-risk youth, as well, to give young people constructive alternatives to crime and violence.

Finally, our budget breaks new ground in addressing the growing problem of homelessness. We propose to consolidate 11 homeless funding accounts into 2, with one objective, and that is to eliminate homelessness once and for all in Massachusetts

STRENGTHENING OUR GOVERNMENT
Now as the Chief Executive of the Commonwealth, my job is to strengthen our government so that it works better for you. Our budget begins to address the gimmicks that distort our position and slow our progress. Most notable, some of you may not know, is the practice of borrowing money to pay the salaries, benefits and pension contributions some of our employees. It's like the government paying its workers on a credit card, and it costs the Commonwealth 60 cents extra on every dollar we do that. Our budget starts to correct that by moving 158 employees back on to the regular payroll. It's a start. More to come.

Like all states, we face looming future expenses in retiree health care.

Ignoring this problem only saddles the next generation with a whopping big unpaid bill. In this budget, propose an innovative solution by dedicating proceeds of the 1990s tobacco litigation to begin to offset our retiree health care liability. By thinking for the long-term we can show a real and realistic plan of $7 billion in savings, to avert a future financial crisis.

These approaches are part of a new standard we want to set in efficient, transparent and forward-looking administration. Thanks to the hard work and creativity of our State Treasurer, Tim Cahill, we will save more than $100 million through smarter debt and cash management. Our budget also eliminates dozens of earmarks, collapses hundreds of line items into fewer project categories, and significantly limits the use of what are called outside sections for non-budgetary purposes.

At noon tomorrow, we will provide an easy-to-understand version of the Fiscal Year 2008 budget both in print and online at www.mass.gov/governor, with more explanation about specific programs and services. The budget is long and it is complicated, not as long and complicated as it used to be but still so, but we want you, each of you, to understand it, and this will help.

LOOPHOLES
Now, our budget also proposes to close a series of so-called "tax loopholes" for certain Massachusetts corporations. Let me be clear about what these loopholes are and what they are not.

There are legitimate business incentives that our state needs to be competitive such as single sales tax factor or credits for research and development. I strongly support these and other measures like them that encourage growth, and none of these are the targets of the reforms that we propose.

What we want to address are gaps in the tax laws discovered and exploited by clever tax accountants and lawyers of the kind the law never intended to confer, and believe me, I know, because I used to hire in my previous life people just like this to do just that.

One loophole permits multi-state corporations to funnel instate earnings to out-of-state subsidiaries to avoid Massachusetts taxes. Another allows businesses to charge themselves rent on their own property and then deduct those rental costs on their tax returns. Yet another loophole allows businesses to identify their corporate structure one way on their federal tax return and another way entirely on their state tax return to produce the lowest obligation on each.

The combined effect is an uneven playing field where companies who can afford highly specialized tax advisors benefit, shifting the burden onto homeowners and small business and depriving the state of revenue that could be used meaningfully to improve our business climate. Closing these loopholes is a matter of basic fairness.

This will not hurt our ability to compete. I've thought about that and worried about it. It turns out, many of the states competing successfully with us for business investment today have already closed these very kinds of tax loopholes. Indeed, our total tax burden for businesses is among the lowest in the nation today. Ernst & Young estimates that Massachusetts businesses have the 47th lowest tax burden in America.

That's why we have invested in speedier permitting, in a state sales force, in marketing our state as a good place to invest. Companies need and want better schools, more teachers (especially in math and science), community police, decent roads, bridges and mass transit and affordable housing every bit as much as individuals do. That's the lasting competitive edge. Ultimately our policies on these - not just our tax policy - will encourage business growth and innovation.

Obviously, I know that taxes are about your money and I want companies, just like each of you, to keep as much of your money as you can. It's your money. But, you see it's also your broken roads. It's your unsafe streets, it's your overcrowded classrooms and broken neighborhoods and your broken neighbors. All of that is yours too. And it is time we shared responsibility for that.

IT'S NOT ALL ABOUT THE BUDGET
Even with all of these savings, it is important for you to hear from the Governor that there was not money for everything in our budget. For example, the condition of our state parks, forests and beaches is in sore need of improvement. We have proposed modest growth this year, but I have asked that before significant new investment we refocus our parks agency on its core mission, delivering resources to the front lines of maintenance and operations, and in that way lay the groundwork for future and greater investment.

I recognize that we are facing serious concerns in housing, that can't all be addressed in this budget. So we have asked some of our quasi-public agencies to step up, and they have. The Massachusetts Housing Partnership has committed $10 million to double the SoftSecond program and MassHousing will support $40 million for the Affordable Housing Trust Fund. These two highly successful programs have put home ownership within the reach of low and moderate income families all across the commonwealth, and that will expand. In fiscal year 2008, we are all committed to addressing the significant backlog of repairs and upgrades needed to bring our stock of public housing back up to grade.

In the same vein, our public universities and colleges receive a modest increase in this budget request, as well as greater flexibility to allocate resources and incentives to achieve savings through shared services and purchasing. But the more significant investment that I have in mind for public higher education will come as part of the package of education reform legislation that we will file in a few months time.

I am proud of this budget, and I am proud of the creativity and thoughtfulness of the team that helped craft it. Many of them are here tonight, and I just want to publicly thank each of you and all of you for your extraordinary commitment, your thoughtfulness, your patience with me, and your determination to set us on a course for long term success in the commonwealth. I congratulate every one of you, thank you. [applause]

And let me say about this team that they know, just like any of you, that progress will not be instant and change will not come without struggle. It will take hard work and a commitment to long-term over short-term gain. I don't believe those who say it can't be done. I've heard people say "You can't do that, Massachusetts is the capital of the status quo"-I don't accept that. Yes, it takes imagination and courage to step out and try something new. But I've asked you before and I ask you again to think for a moment about those who founded Massachusetts. They left their known world, stepped into a wilderness - and built one of the most remarkable societies in human history.

That took creativity, imagination, courage and vision -- a faith in things unseen. That's the lesson of our founders. That's the lesson of our communities. That's the lesson of our own lives. Let that be the legacy we choose for the generation to come. Thank you all for being here, I appreciate it very much.