Administration reveals $325M budget deficit, plans mid-year cuts

The Patrick administration last week announced that the state is facing a $325 million budget shortfall for fiscal 2015 and will be unveiling plans to close the budget gap at some point next week.

Administration and Finance Secretary Glen Shor said the administration would not draw from the state’s $1.2 billion stabilization fund, instead relying exclusively on mid-year spending cuts.

At the Local Government Advisory Commission meeting yesterday, the MMA and local leaders presented a strong case to top administration officials that cities and towns should not be hit with mid-year cuts, especially since the shortfall is in no way related to local government or the overall performance of the economy, and is primarily due to state government administration and spending decisions.

At this point in the year, local officials said, cuts in municipal or school funding accounts would be extremely painful at the local level. Administration officials responded that they appreciated the input, but they did not take local funding off the table.

At yesterday’s meeting, Shor attributed the $325 million shortfall to several factors. Although state tax revenues are essentially on target, state law will trigger an automatic reduction in the state income tax rate from 5.2 percent to 5.15 percent on Jan. 1, which will reduce state tax revenues by $70 million in fiscal 2015. In addition, state revenues are not growing fast enough to offset the cost of an $80 million economic development package approved by lawmakers and the governor late last summer. The largest contributor, however, is a $175 million shortfall in non-tax revenues and agency fees now being reported by the Patrick administration, which did not provide details.

Independent budget analysts indicate that a significant cause of the $175 million shortfall is the breakdown in the state’s health insurance exchange website, which forced state officials to enroll thousands of residents in temporary Medicaid plans, for which the state will not receive full federal reimbursement.

The governor has the authority to unilaterally cut spending in executive branch agencies under his control. In addition, he can ask the Legislature to grant him expanded budget-cutting authority over other accounts outside of the executive branch – such as Unrestricted General Government Aid, Chapter 70 school aid, constitutional officers, the judiciary and independent agencies – a step he has taken in the past.

With the Legislature in informal session through the end of this year – meaning that it can only pass items with unanimous consent – it is unlikely that legislators would grant Gov. Deval Patrick expanded powers to cut local aid. Local officials and the MMA will, however, be keeping a close eye on the governor’s proposals.

“The MMA will strongly oppose any cut to unrestricted municipal aid or Chapter 70, because that would destabilize local budgets in the middle of the fiscal year and force reductions in community services,” said MMA Executive Director Geoff Beckwith. “Unrestricted municipal aid is nearly $400 million below where it was six years ago, and any additional cuts would be painful for cities and towns across the state.”

The last time Gov. Patrick faced a budget deficit in the middle of a fiscal year was in December 2012, when the state was projecting a $540 million deficit. The governor used his budget powers to impose $28.75 million in mid-year cuts to important municipal and school aid accounts, which left cities and towns reeling from unexpected revenue losses.

The mid-year reductions in fiscal 2013 included a 5 percent cut to the Special Education Circuit Breaker program, a 47 percent cut to the homeless student transportation account (McKinney-Vento), a 70 percent cut to the Chapter 70 “pothole” account, a 3 percent cut in veterans’ benefit reimbursements, a 1 percent cut in regional school transportation funding, a 1.4 percent cut to charter school reimbursements, and cuts to other important accounts.

The governor also asked the Legislature to cut $9 million from Unrestricted General Government Aid, but lawmakers rejected the request.