Question 3 would trigger budget tsunami

From The Beacon, October 2010, Vol. XXXVI, #9

As voters turn their attention to the Nov. 2 state election, local officials are right to be extremely worried about Question 3, the ballot measure that would slash the sales tax rate from 6.25 percent to 5 percent.

Last month, the widely respected and nonpolitical Massachusetts Taxpayers Foundation issued a report, “Question 3: Heading Over the Cliff,” which projects a loss of $2.5 billion in state tax revenues in the next fiscal year if the question is approved by the voters – and an immediate $1 billion loss of revenue during the current fiscal year.

This would immediately trigger complete fiscal chaos, as the state would have no way to balance this year’s budget without imposing massive mid-year cuts, reductions that would certainly have an impact on local aid.

The state is already facing a huge budget gap of up to $2.5 billion for fiscal 2012, mostly because one-time federal stimulus revenue and state reserve funds will have been exhausted by the end of fiscal 2011. Even without a reduction in sales tax revenue, the next state budget looks to be the most painful yet, as it will likely include sweeping cuts in all state programs and services. State leaders are already warning that local aid and school funding will be cut again.

Question 3 would deepen the fiscal crisis and create a massive budget gap of up to $5 billion that couldn’t be closed without unprecedented cuts that would undermine state and local services permanently.

These fiscal worries are so severe that all four candidates for governor are calling on voters to vote “no” on Question 3.

The proponents of Question 3 offer no specifics about how the initiative could be implemented, other than to say that the cuts would eliminate “waste, fraud and abuse” and claiming that the revenue loss is affordable because the state spends “$51 billion” each year and can find the room.

As the MTF report points out, the fact is that the state budget is $32 billion, which is nearly $20 billion less than proponents claim. Further, nearly half of the budget is legally or constitutionally mandated spending and can’t be reduced. So the $2.5 billion sales tax cut would be sliced out of approximately $17 billion in discretionary spending, not the erroneous $51 billion figure tossed out by the authors of the ballot question.

Adding the sales tax cut to the budget reductions that will be implemented to close the shortfall that already exists would result in across-the-board cuts in “virtually all state programs, including local aid,” according to MTF.

With so many local officials asking the MMA about the potential loss of local aid due to Question 3, the association has reviewed a simulation based on the loss of $2.5 billion in sales tax revenue and based on the assumption that proportional cuts would be made to all state budget accounts, exempting areas that can’t be cut due to legal obligations (such as debt service).

The shocking results show that all local aid accounts, which have already been cut by more than $800 million since fiscal 2009, would be subject to extraordinarily deep cuts if Question 3 is approved by voters.

Unrestricted General Government Aid, which now stands at $899 million, would be cut by $103 million more. Chapter 70 education aid, which is now $4.07 billion, would be cut by $464 million. Other local aid accounts, including regional school transportation, PILOT, special education circuit breaker funding and library aid, would be cut by tens of millions more.

The total cut to municipal and education aid attributable to Question 3 would be more than $600 million under these assumptions. This would be on top of any other cuts that the state imposes to close the existing fiscal 2012 shortfall.

Municipal leaders can visit the MMA’s website to see what the simulation numbers show in terms of potential Question 3 local aid cuts for their communities. While this budget modeling is being offered in response to inquiries from local officials, the numbers should not be used as a basis for local budgeting or planning, since they are a simulation. Local leaders should feel comfortable, however, sharing the data with interested residents who ask about the impact that Question 3 could have on their community.

Of course the MMA would advocate fiercely to protect local aid and would never endorse cuts of this magnitude. But the facts are clear: Question 3 would result in a budget tsunami that would wash over the state and every community and deposit fiscal misery in its wake. State officials would have few choices but to cut deeply, and that would mean cuts in local aid, widespread layoffs of teachers, police officers, firefighters and public works employees, reduced services, and higher reliance on the property tax.

At a time when Massachusetts needs to invest in education, public safety, infrastructure and quality-of-life services in order to recover from the recession and regain its competitive edge, Question 3 would instead force us to erode the very public services we need in order to thrive economically.

In short, Question 3 would be all pain, and no gain.