For Immediate Release: Wednesday, July 9, 2003, 10:00 a.m.

Contact: Frank Conte, Communications 617-573-8050; 8750

BHI Report Card Grades the Governor

Gov. Romney earns a B+ for his first budget. Needs improvement in limiting the size of state government.

BOSTON – Having fended off pressure to raise taxes in the face of a much-heralded budget shortfall, Governor Romney is earning his grades. According to a report card devised by the Beacon Hill Institute at Suffolk University, Romney deserves a solid B+ overall for his performance.

“Considering what he was up against, he did a pretty good job,” says David G. Tuerck, Executive Director of the Beacon Hill Institute and chairman of the economics department at Suffolk University. “We like to give out grades, and judging from our criteria, Governor Romney understands the principles of good budgeting.”

The institute graded Romney according to five principles of effective budgeting: neutrality, equity, efficiency, responsibility and limiting government. These principles and his grade on each follows:

Neutrality	Avoiding taxes and expenditures that distort private choices and discourage economic activity.	A-
Equity	Achieving fairness in taxes and expenditures; secure the social safety net.	A
Efficiency	Keeping the cost of government low; constraining unit costs.	B+
	Balancing the budget.	A
Limiting Government	Achieving the proper balance between the needs of the public sector and those of the private sector.	C

The Governor has met most of the expectations on which he campaigned last year. Despite protests, the Governor’s budget is more than fair to the poor; it increases spending on Medicaid by 10.5%. In meeting the test of responsibility, the governor has also used his veto pen wisely making sure that spending did not exceed revenues. With regard to efficiency, the governor set out to close the FY 2004 budget gap with some success although he failed to convince the legislature to accept his consolidation of the Massachusetts Turnpike Authority and the Mass. Highway Department.

It is only in the area of achieving fiscal “balance,” that the Governor gets a low grade. There are a number of reasons to believe that voters want a state government that takes a smaller share of the economic pie. Governor Romney comes up short, in part, because he has bought into the idea of a “structural deficit” that makes any shrinkage in government politically impossible.

The FY 2003 budget ended with a small surplus and the FY 2004 will be balanced at $23 billion. But we have heard and will continue to hear opinion leaders expressing worries about multi-billion-dollar structural deficit, defined as the difference between the revenues available to government and the revenues government needs to maintain services. Implicit in the expression of these worries is the supposition that government is powerless to reduce the unit cost of providing services and therefore that the only remaining recourse is to raise taxes.

Unlike a consumer who walks into a grocery store with less money to spend, government has a lot of control over what it pays for things,” notes Tuerck. “If government has the capacity to get what it buys at lower prices, then it doesn’t have to shrink the services it delivers even if the amount of money it brings in temporarily levels off or falls.”

The BHI report calls for bold steps in reducing unit costs: Reducing Education Reform Act money would be one such step. Others would be repealing the Pacheco anti-privatization law, eliminating costly police details and the Quinn Bill as well as scrapping project labor agreements for school construction. The MBTA is another budget item in need of reform.

"We can’t fault the governor for having a legislature that makes such reforms a daunting challenge,” says Tuerck. “But we can fault him for buying into the idea of a structural deficit that makes it impossible for him to make any meaningful dent in the size of government.”

The report card can be found on BHI’s web site at http://www.beaconhill.org/faxsheets/Director5772003.pdf

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