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State Budget Policy
Without cost saving reforms, public sector unions pose future liability crisis for states (BOSTON - May 23, 2013) A one percentage point increase in the unionization of a state’s public sector workforce is associated with an additional $78 of state and local government debt per capita. Meaning, if a state’s public sector unionization were to fall from 50% to 49%, that is associated with a fall in the public debt by $78 per person living in the state. Thus states with higher public sector unionized workforces are more likely to face higher levels of state debt. These are the findings of a new study from the Beacon Hill Institute at Suffolk University. The Great Recession of 2008 left state and local governments exposed to structural deficiencies that threaten their ability to deliver basic public services in the future. For years, state and local governments took the easy path of not raising taxes or cutting spending to accommodate generous compensation packages negotiated through collective bargaining. The study first finds that a one percentage point increase in the unionization of public sector employees is associated with an additional $78 of state and local government debt per capita. For instance, 59.8 percent of public sector employees in Massachusetts are unionized. So, the strength of unions in Massachusetts leads to an additional $4,672.17 of state and local debt per person. With its population of 6,587,489 people, Massachusetts faces about $31 billion in debt. More than 31 percent of Massachusetts’s debt is attributable to the strength of public sector unions. Read more.
Massachusetts Tax Policy
Proposed Tax Increases for Infrastructure and Education in the Commonwealth:
An Economic Analysis The current version of the state legislature’s proposed budget will diminish economic activity less than the Governor’s original House 1 proposal. This is the finding of a new study from the Beacon Hill Institute at Suffolk University. Applying its State Tax Analysis Modeling Program (STAMP), the Institute compared both budget proposals and found that the legislature’s plan would destroy fewer jobs and investment and impose a far lighter claim on real household disposable income. In summary, the model found that the Governor’s proposal would: • Raise $1.876 billion in new tax revenue Press Release (PDF)
12th Annual State Competitiveness Report
Still on top, Massachusetts again ranks first in BHI measure of economic growth and income BOSTON - (April 4, 2013) Massachusetts once again secured the top spot on the 12th Annual Beacon Hill Institute’s State Competitiveness Index. Traditional strengths in human resources, technology and openness buoyed Massachusetts for the second straight year. North Dakota finished second, followed by Minnesota, South Dakota, Utah, Colorado, Texas, Washington, Virginia and Kansas. While the rankings in sub-index measures were far from uniform, states that paid attention to fostering a well-educated and healthy workforce scored well. It also helps for a state to be business-friendly with reasonable labor costs and an environment with consistent firm births as well as sizeable bank deposits which signal local investment. More Complete Report 2012
Policy Study
BHI Study: MA public sector pension system puts taxpayers at risk(BOSTON - February 25, 2013) Under current assumptions made by the Commonwealth, fully funding the three largest public employee pension funds would require the state to make the equivalent of mortgage payments of $1.3 billion a year for the next 30 years. Moreover, the taxes that would be required to meet this annual obligation would destroy jobs, investment and disposable income. This is the finding of a new study from the Beacon Hill Institute at Suffolk University (BHI). Macroeconomic conditions call into question the ability of the state to realize 8.25 percent returns for the funds that it manages. Viewing these unfunded liabilities as mortgage payments over the next 30 years offers a clearer perspective of the true costs to the taxpayer. The vast change in the ratio of expected liabilities to expected assets, or unfunded liability, for these pension funds over the course of a period of underperforming years shows how the underlying assets and assumptions applied to these assets can create distinctly different predictions of the pension’s viability. More Complete Study (PDF)Press Release (PDF)
Massachusetts State Tax Revenue Forecast
State tax revenues to fall flat in FY 2013 but to surge by 5.1% in FY 2014 (BOSTON, December 11, 2012) –The Beacon Hill Institute at Suffolk University (BHI) estimates that Massachusetts state tax revenues will come in at $21.113 billion for Fiscal Year 2013, virtually no increase over FY 2012. Revenues will be $22.194 billion for FY 2014, 5.1% above FY 2013. Paul Bachman, BHI Director of Research and David G. Tuerck, Executive Director of the Institute and Chairman of Economics at Suffolk University, presented the forecast in testimony before the Joint Committee on Ways and Means this morning at 11:00 a.m. in Gardner Auditorium at the Massachusetts State House. The legislature uses the BHI estimate, along with estimates provided by other groups, to help determine the revenues needed for the upcoming state budget. Total tax revenues for FY 2012 closed out at $21.115 billion, and FY 2013 revenues are not expected to exceed that amount. Sales tax revenues are expected to grow by 3.6% in FY 2013, while personal income tax revenues are expected to grow by 0.4%. Based on the New England Economic Partnership forecast of strong growth of employment and personal income over the next two years, FY 2014 revenues will be much improved, growing 5.1% over 2013. More Complete Forecast (PDF)
BHI in the News
Jason Mercier, Director, Center for Government Reform, Washington Policy Center testified before the Washington state legislature's Ways and Means Committe on February 14 citing BHI STAMP model. Policy Paper
Defining a tax method by increasing personal allowances: A comparison with the 2006 Spanish Personal Income Tax This paper defines and evaluates a new tax method based on the combination of a flat rate scheme and increasing personal allowances on the tax base which we refer to as Discretionary Income Tax Method (DITM) against the 2006 Spanish Personal Income Tax (SPIT). The results show from a theoretical perspective that our proposal is more progressive and social welfare enhancing. From an empirical perspective, using the micro-data from the 2006 Spanish Household Budget Survey and the Sample of Taxpayers from the Spanish Institute for Fiscal Studies, we demonstrate that our results are in line with the theoretical predictions arising from the comparison of the two tax methods. Complete Paper (PDF)
Policy Paper
Fiscally Illiberal: State and local projects cannot create jobs responsibly It might be true that "green energy" and "infrastructure" projects create create jobs. But not in the sense proponents of such "public investments" believe. Unemployment has many possible sources, and government spending can only potentially address one of these sources. Moreover, the mechanism by which the federal government addresses unemployment is to increase deficits. The federal government not only can pay for this by borrowing at a lower interest rate than state and local governments – it has the keys to printing presses should it run into difficulty with its obligations. State and local governments do not have this option, so they should not be in the business of running a deficit for the sake of creating jobs. This is the topic of a new BHI paper by Ryan Murphy. The problems in Europe, especially Greece, are emblematic of what happens when governments try to do these things without access to printing presses. “Job creation” at the state and local level, if the economics is to be taken seriously, implies a host of other issues which casts serious doubts on the benefits of those jobs. Prudent lawmakers should in reality set aside jobs created by these projects when weighing costs and benefits, as those jobs were not created responsibly. Complete Paper (PDF only)
Policy Analysis
Pennsylvania’s Alternative Energy Mandate will lead to greater economic costs with minimal benefit (Boston, MA- December 13, 2012) Pennsylvania’s Alternative Energy Portfolio Standard, which requires that utilities obtain 18 percent of their power generation from non-traditional resources by the year 2021, would likely lead to an economic cost to the Commonwealth of $16.3 billion from 2013-2021, according to a new study published by the Beacon Hill Institute. The report, prepared by economists at Suffolk University in Boston, found that Pennsylvanians will likely see their power bills increase by nearly 12 percent due to the mandate, and perhaps as high as 15 percent. Since the dependence on electricity is ubiquitous, those costs are regressive and will hit low-income households the hardest. Unsurprisingly, the higher costs – which have an effect similar to tax increases – will result in thousands of net job losses and decreases in disposable income. “With unemployment still above 8 percent and vast resources of coal and natural gas, Pennsylvania is harming its citizens with its unnecessary alternative energy mandate,” said Paul Bachman, director of research for the Beacon Hill Institute and a co-author of the report. “Besides the obvious costs, the forced use of so-called renewable sources will have no detectable effect on the environment, and thus no real benefit.” More. Complete
study (PDF)
Policy Analysis
Missouri’s Renewable Energy Standard will be bad for business, jobs and investment (Boston, MA, November 15, 2012) A new study, which analyzes Missouri’s Renewable Energy Standard (RES), offers several reasons for Gov. Jay Nixon and the state legislature to assess whether the voter-initiated mandate should be revisited. The report, prepared by economists at the Beacon Hill Institute at Suffolk University in Boston, found that Missourians will likely pay $1.41 billion more for power in 2021 because of the state's RES, and it could cost them as much as $2.2 billion more. Missouri’s RES requires utilities to generate 15 percent of electricity from renewable sources by 2012. However, the use of renewable sources does not reduce greenhouse gas emissions and provides no environmental benefit. Wind and solar facilities require significant fossil fuel backup power sources to accommodate variations in the availability of wind and sun. That’s because wind power is intermittent and fossil-fueled generators are called upon to fill the gaps to compensate for wind fluctuation. The powering up and down of conventional generators cause more pollution than they do when run consistently without wind or solar. More Press Release (PDF)
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