Locals wait on continuing state and federal budget delays

Cities and towns across the state started the new fiscal year on July 1 with budgets using best estimates for revenue and making hard decisions on spending as the coronavirus recession takes its toll on economic activity and government revenues and imposes new costs, particularly related to the reopening of schools.

Uncertainty about the fiscal 2021 state budget – which continues to be delayed – and possible action by Congress on additional relief for state and local governments puts local budget plans at risk and creates worrisome potential consequences for municipal and school services and local government employees.

It appears almost certain that cities and towns will have to revisit budgets in the fall, after Congress has decided on a relief package and the state finalizes a budget, with funding for municipal and school aid, based on updated economic forecasts and drawing on any new federal funds and the state’s $3.5 billion stabilization fund.

More than 100 towns opened fiscal 2021 with temporary budgets authorized by the Division of Local Services. Others held town meetings before the pandemic hit or were able to get budgets approved, mostly in June, by creatively holding meetings outdoors or in other spaces where social distancing could be practiced. Special state laws authorized cities and towns to start the year with temporary spending plans.

The state budget is usually finalized by mid-July, but neither the House or Senate has approved a bill, and the delay is expected to continue into the fall. The revenue forecast used to build the governor’s fiscal 2021 recommendation in January has not been officially updated, and it will take until September for the state to have final numbers and be able to close out fiscal 2020.

At a hearing convened by the Commonwealth Resilience and Recovery Special Committee last month, Department of Revenue Commissioner Geoffrey Snyder said the state is still facing ongoing uncertainty on tax revenue due to the impact of COVID-19 on the economy. Rep. Mark Cusack, House chair of the Revenue Committee, said an early estimate of $2 billion for a fiscal 2021 revenue shortfall could now be as high as $8 billion. The Massachusetts Taxpayers Foundation estimated the shortfall at $6 billion in a report released in May.

At the federal level, the House and Senate have not reached agreement on an additional round of relief for states and local government, and still appeared to be far apart in mid-July. While CARES Act funds are being allocated to cities, towns and school districts under strict federal rules, the amounts are not adequate to sustain state and local programs, particularly the reopening of schools in the fall under different, and costly, circumstances.

Local governments in Massachusetts spend more than $25 billion annually on vital services, mainly for schools and public safety, and employ more than 250,000 people. Cuts in state assistance would hit local budgets hard, making it more difficult for communities to lead in fighting the COVID-19 pandemic and weakening the essential programs that are crucial to the state’s economic recovery in the coming months. For these reasons, the MMA is calling on state officials to prioritize and protect municipal and education aid as budget decisions are being made.