Governor tackles FY17 budget shortfall

After taking a look at state finances through the first quarter of the year, the governor’s chief budget officer has projected a fiscal 2017 shortfall of nearly $300 million due mainly to lower-than-expected growth in sales tax collections and several important spending items that were not fully funded in the budget act signed in July, including appropriations for snow and ice removal operations.
 
Administration and Finance Secretary Kristen Lepore said earlier this month that her agency has started to plan for spending reductions in the executive branch budget as well as other ways to close the gap.
 
Lepore and the governor have said that aid to local governments, and funding for certain other unavoidable appropriations such as debt service and pensions, would not be cut, and that funding for certain core human services programs would also be off the table.
 
The governor’s office has announced a one-time buy-out program for state employees as a way to trim the state workforce and reduce costs. The program is scheduled to run through Nov. 14, after which a decision is expected on whether layoffs might be needed. The buyout program includes up to $15,000 for retirement-eligible employees and $5,000 for other executive branch employees.
 
The administration said it chose to take action early and not wait until January, when cuts would be harder to implement.
 
House Speaker Robert DeLeo, however, said he wasn’t sure tax collections were as far off track as reported, and said he prefers a “wait and see” approach before changing the fiscal 2017 budget plan.
 
Secretary Lepore’s announcement about the projected shortfall was based on Section 5B of Chapter 29 of the General Laws, which requires the secretary to update revenue estimates by Oct. 15. Lepore said she was revising the revenue estimate for fiscal 2017 downward by $175 million (to $20.06 billion) to reflect projected sales tax growth of 2.3 percent rather than the 5.2 percent that was originally forecast. She said the revision was made after consulting with the Department of Revenue and outside economists about the latest economic information.
 
A separate letter from Lepore, under Section 9C of Chapter 29, indicated that the lower tax forecast, coupled with a number of unfunded spending obligations, led her to project a fiscal 2017 deficiency of $294 million. She noted projected shortfalls for legal costs for indigent defendants and snow and ice costs, shelter exposures, and settlement and judgment costs.
 
The “9C” letter is the formal starting point for any reductions in appropriations that the governor might choose to make without action by the Legislature, a process that has been used frequently over the past several years.
 
In September, before first quarter state tax collections were announced as roughly on target in total, the Massachusetts Taxpayers Foundation recommended that “even if September revenues come in close to benchmark, the Foundation still believes that a downward adjustment is necessary to reflect recent collection trends.” The foundation also noted that many of the actions taken to balance the troubled fiscal 2016 budget could have an adverse impact on fiscal 2017, including the use of one-time revenues.