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Two billion reasons to start slashing

It thus turns out that the much-touted structural deficit is spun from whole cloth. Since estimates about the size of the structural deficit involve sheer guesswork over how to measure services and how to measure unit costs, such estimates are, in the end, of no objective value in framing budget issues.

 

 

by David Tuerck

July 6, 2003

With the fiscal 2004 state budget debate drawing to a close, let's review the math to see what happened.

Consider, for example, how the state handled the $3 billion "structural deficit."

That's the gap between what the state presumably needed to spend in fiscal 2004 in order to "maintain services" and what it could expect to raise in revenues under current law and in the current economy.

How much of this "gap" was closed with spending cuts? The answer is zero, or, actually, less than zero, since total state spending will be slightly higher in fiscal 2004 than it was in fiscal 2003.

What then was done to close the $ 3 billion gap?

Well, when we add up the tax-loophole closings, fee increases, inter-fund transfers, federal reimbursements and one-time revenue enhancements in the new budget, we get about $ 1 billion.

So far, so good. But things get iffy when we get to the still-missing $ 2 billion. That $ 2 billion is supposed to represent a combination of two numbers: service cuts and unit-cost savings.

The trouble is that it's hard to tell the one from the other. If a city cuts the crew for a fire truck from four to three firefighters, do firefighting services go down, or is the city merely reducing the unit cost of delivering the same level of fire protection?
If the state restructures a government agency along "functional," rather than "product" lines, will it deliver the same services with fewer workers, or will it just end up redrawing the agency's organization chart?

We don't know. And those are just two examples. There are hundreds of line items in the state budget for which we could raise equally tangled issues.

It thus turns out that the much-touted structural deficit is spun from whole cloth. Since estimates about the size of the structural deficit involve sheer guesswork over how to measure services and how to measure unit costs, such estimates are, in the end, of no objective value in framing budget issues.

Indeed, they mainly reflect the political biases of the people who offer them.

Gov. Mitt Romney deserves credit for trying to reduce unit costs in framing the 2004 budget. His restructuring of health and human services shows promise in this regard. He got state workers to pay for more of their health insurance. His proposals to merge Massachusetts Turnpike operations with those of the state highway department and his efforts to reorganize higher education and the courts deserve further consideration next year.

The governor made a mistake, however, in buying into the "structural deficit" mumbo jumbo.

By doing so and by giving himself the task of finding some $ 2.7 billion in budget reforms, he put himself immediately on the defensive, inviting criticism that his promised savings were "unrealistic."

We already hear warnings of a $ 2 billion fiscal 2005 structural deficit.

The governor can expect to suffer the same criticism next year if he buys yet again into this mind-set.

The governor would do himself and the commonwealth a favor next year if he announced that there will be no more loophole closings, fees or other taxlike revenue enhancements and that his goal, as articulated in his campaign, is to reverse the billion-dollar tax hike enacted in 2002.

Having taken that stance, he could then invite a dialogue on how the commonwealth can cope with this new fiscal discipline.

The following are some suggested reforms:
- Reduce state education aid, now totaling $ 3.6 billion, on the principle that education reform has made no measurable improvement in school performance.
- Repeal the Quinn bill, and eliminate paid police details, allowing flagmen to be used on the jobs as they are in other states.
- Repeal the Pacheco anti-privatization law and the state prevailing wage law, and end state subsidies to local school projects that are built under union-only project labor agreements (which adds enormously to their cost).
- Undo the law that gives the MBTA a fixed percentage of state sales tax revenue, and put the agency on a tighter budget.
- Further limit the growth of Medicaid spending and get federal approval, if needed, for increased co-payments and tighter eligibility standards.
- Invite local governments to negotiate tougher contracts with the unions that represent police, firefighters and teachers.


Politically unrealistic? When we look at last year's vote on the state income tax and the number of failed attempts to have voters override Proposition 2 1-2 in their communities, maybe not.


Maybe the governor would find voters more than sympathetic to the idea of letting the state Legislature and local governments figure out how to make ends meet.

David G. Tuerck, PhD, is chairman and professor of Economics at Suffolk University where he also serves as Executive Director of the Beacon Hill Institute for Public Policy Research.

This article appeared in the July 6, 2003 edition of the Boston Sunday Herald.

Format updated on 18 August, 2004

 

 

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