Local aid is an economic necessity

From The Beacon, January 2009, Vol. XXXV, #1

The national recession has hit Massachusetts, and the impact has been swift and fierce. Clearly, the economic downturn will create daunting challenges for state and local officials, and the Commonwealth and cities and towns will struggle to function and deliver services in the months ahead.

There will be many difficult and unpleasant choices and paths to take, and the actions taken will determine whether the Bay State’s recession will be shorter and shallower or longer and deeper. All decisions should be based on the overall health of our economy, and protecting the essential services that will ensure a faster and surer recovery from the economic crisis we face today.

From a budget-writer’s perspective, the recession is a deficit-producing monster. State tax revenues have plummeted due to declining consumer purchases, losses in the stock market, lower salaries and bonuses, rising unemployment, and declining income tax collections.

Local tax revenues are taking a big hit as well. New growth in the property tax base will certainly decline because residential and commercial construction is at a near standstill, translating into a decline in expected property tax collections. Consumers are not buying new cars, which means the auto excise tax will fall next year as well. Fiscal 2010 promises to be a mess.

In October, the Patrick-Murray administration took bold and decisive action to close the emerging fiscal 2009 deficit, then estimated to be $1.4 billion. At that time, the governor lowered the state’s tax projections by $1.1 billion and identified $300 million in unexpected spending obligations. State budget accounts were reduced by nearly $1 billion, with no cuts to major local aid accounts.

The MMA applauds the administration’s decision to preserve essential local aid. The fact is that cities and towns have not recovered from the 2003 mid-year aid cuts imposed during the last recession. Indeed, the 2003 and 2004 cuts were so harmful that most municipalities have suffered chronic fiscal distress ever since that time. Adjusting for inflation, local aid is $566 million lower today than it was in fiscal 2002. In seven years, communities have not been able to achieve full stability, and this has impacted all aspects of municipalities, from education to public safety to public works. Another round of mid-year cuts would have had a debilitating impact to the very services that are the foundation of our economy.

This late in the year, the real-world impact would have been to create large deficits that could only be pushed off to next year, as localities don’t have the reserves to cover any cuts, and even massive layoffs wouldn’t generate enough savings due to unemployment costs and the late timing.

Cities and towns educate schoolchildren who enter the workforce. Communities build and maintain the roads, bridges and infrastructure systems that facilitate commerce and attract economic investment and expansion. Local governments police the streets and respond to fires and medical emergencies, and these public safety services are necessary for families and businesses. Municipalities provide quality-of-life programs and services for seniors, individuals and families that make Massachusetts attractive as a place to live and work.

Local aid is essential for our economic future because cities and towns cannot provide these vital services without financial assistance from the state. In fact, economists agree that cutting local aid during a recession would erode the very services we must rely on to build our economy. Local aid cuts would deepen and lengthen the economic downturn, and weaken our ability to recover.

But this is not the end of the story. On Dec. 15, state officials and independent economists met at the State House to review the latest information, and the new projections are for state revenues to decline even more this year, by a large amount. The state budget gap will grow by another $750 million-$900 million, according to the experts.

State leaders are now saying that they will evaluate the full extent of the problem in early January, when state tax collections (especially capital gains) are clearer, and more information is available on any federal assistance that may come in an expected national economic stimulus package. The problem is so severe that they are now saying “everyone will have to share in the pain” and “everything is on the table.” This implies that they may be eyeing mid-year local aid cuts as a way to close the state’s budget gap.

Well, everything may be on the table, but any decisions should be based on the overall health of our economy and the long-term public interest. Local aid reductions would be more than painful and terribly harmful to municipal budgets. Real services would be slashed. Our schools would be overburdened, class sizes would increase, fewer police officers and firefighters would be able to respond to emergencies, our roads and bridges would crumble even more. Our long-term economic position would be severely weakened.

Let’s focus on what will help our economy and our ability to navigate through the recession. Cities and towns are managing effectively with fewer resources, but there are limits because of restrictions and limitations in state law. Communities need stronger management tools and additional revenue sources. We need local-option taxes. We need to close the telecommunications tax loopholes. We need control over health insurance decisions outside of collective bargaining, just like state officials. We need to reform the charter school funding scheme that hurts local school systems. And we need dozens of other reforms to empower municipal leaders to maximize savings and deliver services in this modern era of finite resources.

Even with all this, communities will continue to rely heavily on local aid. And the MMA strongly asserts that the best long-term choice for Massachusetts is to empower local government, not to erode the very services that we need to shorten and lessen the recession that is already hitting our citizens too hard.