Mass. state revenues continue free fall

State revenues continue free fall
By Matt Viser
Globe Staff
May 1, 2009

State revenues are continuing to collapse, falling short by at least an additional $300 million in April and leading state officials yesterday to predict possible cash shortages, budget cuts, more layoffs of state workers, and perhaps additional tax proposals to bridge the growing gaps.

Senate leaders say the state appears to be on track to fall as much as $365 million short in the current fiscal year, on top of a similarly sized deficit the governor announced just two weeks ago. The additional shortfalls come after a deficit of more than $2.5 billion has already been closed in this fiscal year’s budget. Even big infusions of financial aid from the federal government, courtesy of President Obama’s stimulus package, have not been enough to plug the holes.

“Every day it gets worse and worse,” said Senator Susan C. Fargo, a Lincoln Democrat.

The situation has grown so dire that, in a highly unusual move, Governor Deval Patrick is planning to refile his budget proposal for next fiscal year to reflect the toll the economy has taken since his initial budget request in January.

The picture is expected to continue worsening into the next fiscal year, which begins July 1. Senators are readying a fiscal year 2010 budget that may use an estimated $3 billion to $3.5 billion decline in revenues from the original projection for fiscal year 2009 - a stunning 16 percent decline in revenues because of the recession.

Meanwhile, State Treasurer Timothy P. Cahill warned yesterday that the state treasury could be depleted of all its funds before the end of the fiscal year, which could mean delaying or lowering payments to cities and towns, or draining more from the state’s rainy day fund.

“We’re starting to sincerely worry about the cash flow and making all our payments at the end of this year,” said Cahill, who projected the state could actually be in the red for several days in over the next two months. “It’s fallen off the cliff. It’s literally fallen off the cliff.”

The tumbling revenues - which have consistently fallen short all year, even failing to meet the state’s reduced expectations - will put even greater pressure on Patrick and the Legislature to cut programs or raise taxes. The discussions are bound to raise tensions among Democrats on Beacon Hill, who have been at loggerheads all week over which taxes to raise and how much to raise them.

The House has approved an increase in the state sales tax from 5 percent to 6.25 percent, but Patrick has threatened to veto it unless lawmakers also approve a series of ethics, pension, and transportation overhauls.

Patrick sent out a one-page summary to state lawmakers yesterday, detailing his “deep reservations” on raising the sales tax. Senate Republicans responded by circulating their own one page summary - titled “The Real Story” - that pointed out what they see as Patrick’s shortcomings on each issue.

House Republicans tried unsuccessfully to delay budget deliberations until next week, when lawmakers will have firmer estimates on April revenue figures.

“We’re in a free-fall here,” said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation. “The collapse of revenue is so huge that all of the options seem impossible - cuts of that magnitude or additional revenue of that magnitude.”

Senate Democrats met for nearly three hours yesterday behind closed doors to discuss the budget forecast, and emerged projecting that their budget would use revenue estimates up to $1.5 billion below the House budget, which has spurred wide protests from social service groups.

State senators have generally avoided any discussion of raising taxes, saying they are weighing a wide range of options.

“We’ve got a big problem,” said Senator Steven A. Tolman, a Boston Democrat. “And we can’t tax our way out of it.”

Just two weeks ago, Patrick announced he was planning to cut an additional 750 jobs from state government and furlough 5,000 executive branch employees for up to five days. That was the third time in seven months Patrick had announced emergency budget cuts.

April revenue figures, which will be officially released next week, are estimated to fall between $365 million and $465 million below expectations, said Senator Steven Panagiotakos, the chairman of the Senate Committee on Ways and Means. He also estimated that May and June revenues would fall by $200 million to $300 million.

“We have chased the number,” Panagiotakos said. “There’s been three downward revisions and we still haven’t gotten to the bottom yet. It’s just an indication of the economy continuing to deteriorate.”

The Senate plans to begin its budget deliberations over the next few weeks. Several State House officials said the Senate would end up using a revenue estimate of $18 billion to $18.5 billion, although Panagiotakos would not specify which figure he would use.

Patrick and House lawmakers built their budgets around an estimate that the state would bring in $19.5 billion next year.

“The governor’s budget,” Senate President Therese Murray said yesterday, “is about $1.5 billion out of whack.”

Just as the House and Senate debate their own budget proposal, Patrick is planning to come up with a new revenue estimate and refile his budget in the next few weeks, according to Leslie Kirwan, secretary of administration and finance.