Preaching and practicing fiscal discipline


"There is no discipline in announcing a budget gap and then raising taxes to fill the gap."

By David G. Tuerck | January 10, 2007

BEFORE TAKING office, Governor Deval Patrick announced his intention to restore $384 million in spending previously cut by Governor Romney from the state budget. Included in the restored spending is $100,000 apiece for a gazebo in Braintree and an ice rink in Randolph and $735,000 for HIV treatment and prevention.

Immediately after the announcement, Patrick's aides warned about a looming deficit of $1 billion in the state budget, partly the result, the governor then implied, of mismanagement by the Romney administration. The governor began to hedge on some of his promises for new programs. The possibility of a tax hike is in the air. Taxpayers might wonder why, if the new governor faces a $1 billion deficit, he didn't forgo the gazebo and ice rink as part of the price of treating people for HIV. They might also wonder how the state came to face a budget gap, considering that state tax revenues have come in over budget by $782 million per year over the last 10 years.

In fact, a budget gap is not something handed down by nature, the economy, or a prior administration, but the creation of a government unwilling to live within its means. And if revenues do not grow in line with expectations, the government does not have to raise taxes. It can just as well cut spending.

Consider school spending. Chapter 70 aid to public schools accounts for $3.5 billion in state spending or about 14 percent of the budget. The state could cut this spending by $374 million, which is about 4 percent of total school spending, without cutting into the "foundation budget" for schools.

Then there's healthcare. In fiscal year 2007, the state substantially increased Medicaid payments to healthcare providers and expanded eligibility for Medicaid benefits. If the state cut $484 million, or about 6.5 percent, from its Medicaid budget, it would save $242 million, after adjusting for federal reimbursements. Adding $374 million cut from schools, $242 million saved on Medicaid, and Romney's cut of $384 million, which could be restored and, if necessary, extended into fiscal year 2008, we get $1 billion in savings.

Other opportunities to save abound. The state could save money by repealing the prevailing wage law and by ending the practice of performing public construction projects under project labor agreements. It could cut back on police details and Quinn Bill incentive pay, both of which help police officers rank among the highest-paid government workers in their communities.

Of course, there are immense political obstacles to these suggestions. But that is just the point. The fact that the political culture is so hostile to spending cuts means that taxpayers have only one recourse for imposing fiscal discipline, which is to constrain lawmakers to live with a certain amount of revenue and no more. Taxpayers cannot be expected to sort out all the priorities that compete for their tax dollars. They can, however, demand that lawmakers honor their wishes on the matter of how much in tax revenue is available to spend.

The problem is getting lawmakers to understand this principle.

Voters tried to impose a revenue constraint in 2000 when they cut the state income tax rate from 5.85 percent to 5 percent. But as soon as the first budget "crisis" came along, the Legislaturefroze the rate temporarily at 5.3 percent and did so at the urging of the same budget experts who have the governor's ear now.

Lawmakers and budget expertscannot, however, preach fiscal discipline in one breath and then defy the express wishes of taxpayers to constrain revenue growth in the next. There is no discipline in announcing a budget gap and then raising taxes to fill the gap. Real discipline lies in recognizing that there is only so much revenue to spend and that thestate will have to make do with thatmuch revenue and no more. Senate President Robert E. Travaglini, who has declared that tax hikes are off the tablethis year, appears to understand this principle.

Will the state actually have to cut spending? Probably not. It appears that revenue growth will be strong enough to carry us through fiscal years 2007 and 2008. Patrick should not be warning about budget gaps that are unlikely to materialize but taking the initiative to identify spending cuts he is prepared to make in the event that they do.

David G. Tuerck is executive director of The Beacon Hill Institute and chairman and professor of economics at Suffolk University. This article originally appeared in the Boston Globe on January 10, 2007.