Governor Deval L. Patrick's Ways and Means Testimony on Tuesday, March 3, 2009

Chairman Panagiotakos, Chairman Murphy and members of the committee.

Good morning and thank you for this opportunity to testify about our budget recommendations for FY2010. Undersecretary Gonzalez and Assistant Secretary Gorzkowicz will present our proposal in detail in just a minute. But I wanted to make a couple of points at the outset about the broader context for this year's deliberations and about the federal economic recovery bill.

These are uncommon times. The weakness in the economy is having a profound impact on individuals, families, businesses and communities across the Commonwealth. Unemployment is up. Business activity is down. And people are hurting or worried or both. No one has been spared. That reality all shows up in the state's fiscal situation, both in terms of falling tax revenues and increasing demand for certain services. We will have to be especially sober and sensitive in the choices we make this year.

At the same time, it is important to remember and to remind the public that all economies are cyclical and we will cycle out of this downturn. Meanwhile, we in state government should wherever possible make budget choices today that will make us stronger when the economy improves. We should more than ever be governing for the long-term. That is what our budget proposal - and our entire Emergency Recovery Plan - seeks to do.

The President's recovery bill will help us bridge to a better time over the next couple of years. I want to describe some of the benefits we believe it will bring. But it is not a panacea. It does not let any of us off the hook from making tough and sometimes painful choices, nor should it.

Though we are still analyzing the bill, it's safe to say Massachusetts will receive between $6 and $9 billion over the next two-plus years. Despite what you may have heard, these funds do not come as a lump sum windfall, to be doled out at my discretion. Most will come through existing programs for specific purposes, either to the state or directly to municipalities. Some will come to fund certain types of infrastructure projects. Much of it will flow directly to individuals, families and businesses in the form of tax cuts and credits. Through certain competitive grant programs, we are well positioned to receive more funding beyond the $6-to-9 billion range. Fortunately, the bill's priorities align with our own. We are well positioned to take advantage of its benefits.

To begin with, we expect to receive significant funding for sorely needed and ready-to-go infrastructure projects, including $400 million in highway funding and over $300 million in transit funding that will help get a variety of maintenance and modest expansion projects moving. Physical infrastructure is a vital component of our economic competitiveness, and these funds, together with the investments we are making through the state's capital budget, will put shovels in the ground and get men and women back to work.

We have the opportunity to compete under the bill for new resources for wind, solar and biofuels. This will help us continue to blaze the trail out of the fossil fuel era and into the clean energy future. Since the legislation favors those states that have a framework for investment in place, as we do, we expect to be a strong competitor for this funding.

Similarly, the bill provides $7 billion nationally for competitive grants to expand broadband to un-served and underserved areas. Together with our own Broadband Bill enacted in the last legislative session, this funding means we can move faster in our work to increase access in the approximately 31 un-served and 63 underserved communities across the Commonwealth.

Complementing our life sciences initiative, the bill significantly increases funding for the National Institutes of Health and the National Science Foundation. Our universities, laboratories, hospitals and life sciences industry have always competed very well for NIH and NSF grants. The bill also commits $19 billion to migrating patient health records to an electronic format, which can accelerate efforts on this front launched as part of the Senate President's health care cost containment bill last year. We also expect our high tech companies to be strong competitors for e-health contracts from across the country.

Mindful that education is the Commonwealth's edge in a global economy, we have been particularly focused on education funding. Under the federal recovery bill, Massachusetts will receive over a billion dollars in total federal education aid over the next couple of years. In our budget proposal, we prioritized education, maintaining next year's Chapter 70 spending at this year's record level. With these additional federal funds, we can and should bring every community up to full foundation funding in the next fiscal year, and also restore some of the cuts we have had to make to state and community colleges and UMass.

The federal recovery bill also provides help to people who have been most vulnerable to the impact of the economic downturn.

Massachusetts will receive close to $45 million to help us prevent families from becoming homeless. We are eligible to receive an estimated $60 million to help restart approximately 31 affordable housing projects, which will both provide housing to about 1,500 families and get people back to work.

We will also benefit from additional Medicaid funds, enabling us to preserve state health coverage for the increasing numbers of people who need state-subsidized programs during times like these. In anticipation of this relief, we included $1.2 billion over fiscal years 2009 and 2010 - out of an expected total of $1.6 billion stretching over three fiscal years - for this purpose.

We were conservative in estimating the amount of Medicaid funds we will receive from the stimulus bill and are likely to receive some additional funds. But the use of such funds cannot be determined in a vacuum. The performance of tax revenues over the next few months, the progress of some of the other revenue and savings proposals we have put on the table, and ever-evolving information about state spending needs are all relevant to what we can and should do with these funds.

Our Administration has been mobilizing to put these many streams of federal funds to work quickly and with maximum transparency. Back in December, we convened a number of task forces to identify projects throughout the state that would be ready to start in six months or less. We have appointed a Director of Infrastructure Investment, Jeffrey Simon, to help select and oversee these projects and have launched a website for tracking the money, project by project. Every part of my Administration is scrutinizing every line of the federal recovery bill for every opportunity to maximize federal funding for Massachusetts - and creating mechanisms to promptly and thoughtfully put that money to work with the transparency and accountability the public deserves.

So the stimulus package will help enormously. But it will not close our budget gap. We continue to face serious challenges to our operating budget and our overall fiscal and economic health. There can be no avoiding tough cuts in everyone's priorities, lean funding, difficult choices and further reforms in state and local government.

Ultimately, it remains up to us, working with the business community, non-profits and citizens, to do whatever we can to keep our schools, our neighborhoods, our neighbors and our spirit intact for now, and to position ourselves for future growth. That includes prompt action on the Emergency Recovery Plan and municipal relief measures we filed in January, and continuing to pursue the various reform proposals before the Legislature. I look forward to working with all of you to achieve those results.

I return to this point because some have asked why we need to make budget cuts, or for that matter raise new revenue for our transportation system, when we have recovery funds coming from the federal government. The first reason is because the federal money is not enough and is not intended just to plug state budget gaps. The further truth is that we have long-term structural problems both in our budget and throughout state government, and while the federal funds will provide a short-term bridge, we need to level with each other and the public about the need for budget cuts and real reform to fix them. If we are honest about the challenges and wise about the choices we make now, we will come out of this recession a stronger and more secure Commonwealth.

Let me elaborate on these two points briefly. Because of the recession, we have had to reduce our estimate of state tax receipts by nearly $2 billion for the current fiscal year, with little or no growth expected for fiscal year 2010. Between these two fiscal years, we have had to close projected budget deficits totaling approximately $6 billion. The federal stimulus money - while a helpful piece of our proposed budget solutions - is not nearly enough to address our projected operating deficits over this and next year. And if tax revenues continue to fall below current forecasts, our challenge will be even greater. Stimulus is mainly intended to create or preserve jobs, not just plug budget holes.

Moreover, one-time federal relief is not a solution to inherited structural budget deficits. These are part of the reason we face enormous gaps today, and will be the reason we face gaps even when the economy improves - unless we seize the moment to reshape government so it can more efficiently carry out its mission and identify new, responsible sources of recurring revenues. I urge you to look at the reforms, savings and recurring revenue proposals accompanying our budget blueprints in precisely this light.

Similarly, federal relief can help with a piece of our transportation backlog on a one-time basis. But it is hardly a solution to a multi-year legacy of neglect that has left us with structurally deficient bridges, unreliable and inadequate rail service, congested roads, and a staggering $15-to-$19 billion funding gap simply to maintain the current network over the next twenty years. There is a fundamental imbalance between our transportation needs, costs and resources - and nothing short of fundamental change will provide a sustainable and equitable solution. Fundamental change means both the types of sweeping reforms we have proposed in our Transportation and Economic Security Plan, and an increase in the gas tax. Reforms are essential, but they are not alone enough to secure our economic future. I know these changes are controversial, but they are needed. We cannot afford to kick this can down the road to somebody else any longer.

A fellow Governor in another state likes to say that "a crisis is a terrible thing to waste." I share the sentiment. Now is a moment not just of challenge, but also of opportunity. And no one can be a spectator or just kibitz from the sidelines. I stand ready to work with you closely to make and implement the decisions today that make us as strong as possible for the economic upturn when it comes.

Thank you.