The Patrick administration plans to reduce rainy day fund spending this fiscal year by $80 million and cut its request for spending from the fund next year by $29 million, citing a recent federal government announcement that it will reimburse Massachusetts for certain payments associated with prescription drug coverage.
Administration and Finance Secretary Jay Gonzalez discussed the plan during opening remarks at the last legislative hearing on Gov. Deval Patrick's $28.2 billion fiscal 2011 budget request.
Gonzalez said the administration intended to devote funds that had been intended to pay for Medicaid prescription drug coverage to pay other Medicaid bills and to support “community beds” in the health and human services arena.
This year’s budget calls for the use of nearly $200 million from the rainy day fund and the change would lower that draw down to $119 million.
The administration's new plan will call for the use of $146 million in rainy day funds next fiscal year, rather than $175 million, and Gonzalez said it would leave the stabilization fund with $560 million at the end of next fiscal year.
At the hearing, Rep. Barbara L’Italien (D-Andover) said the administration should have taken better care not to promise funds to the disabilities community that hadn’t yet been approved by the Legislature. Although Gonzalez has the authority to reduce the amount of stabilization funds the state relies on this fiscal year, L’Italien repeatedly pressed him on whether he believed he had the authority to allocate funds.
“All of those folks quite frankly believe that they’re all set now, that those items have been taken care of,” L’Italien said, before emphasizing that the administration had merely amended next year’s budget proposal, not guaranteed funding. The House and Senate have yet to debate next year’s budget plan.
Earlier in the week, the administration issued a statement saying that the reimbursement will allow the Department of Developmental Services to avoid eliminating 315 community-based beds, an announcement cheered by the disability community.
Gonzalzez also revealed that the administration anticipates having to pay $475 million in bills via supplemental budgets this fiscal year, to cover the state’s Medicaid program, snow and ice removal and public counsel services, among others.
Calling the list a “very limited set of deficiencies,” Gonzalez said he has warned state agencies not to expect supplemental funding and that the governor has already filed spending plans to address half of the bills. While overall state tax collections are down from fiscal 2009, collections are beating revised benchmarks and Gonzalez said the bills would likely not require any further dips into the rainy day fund.
A spokeswoman for the Executive Office of Administration and Finance said the agency anticipates being able to pay its remaining bills with rainy day funds already provided for, as well as end-of-year reversions from agencies with leftover funds.
During the hearing, the last of eight budget hearings held by the House and Senate Committees on Ways and Means, Senate committee vice chairman Stephen Brewer wondered whether lawmakers should consider statutorily requiring quasi-public state agencies to participate in the “shared sacrifice” that he said government has made to address the economic downturn.
“I would caution against legislative mandates on them,” Gonzalez replied. “Their ability to do the important things we set them up to do in many ways depends on that independence. It’s a balance that needs to be made.”
While the Patrick administration has faced campaign trail charges of overspending and overtaxing during its tenure, Gonzalez said state spending had risen an average of 0.6 percent during the governor's tenure, compared to an average 4.6 percent in recent years preceding Patrick's run. That’s including a $900 million a year sales tax increase that the governor signed into law last year.
Gonzalez put a positive spin on Patrick's budget management, noting this week's affirmation of the state's bond rating by credit agencies and the assembling of balanced budgets in the face of a $4 billion tax revenue decline, not counting the $900 million a year sales tax hike of last summer, when comparing projected fiscal 2011 revenues to actual fiscal 2007 revenues.
Sen. Michael Knapik (R-Westfield) challenged Gonzalez on the administration’s handling of contract negotiations with certain state workers that resulted in promises of 7 percent wage increases over four years, calling it “certainly not consistent with what’s gone on in the private sector.”
“I don’t want to say it’s a tale of two sets of employees, but it’s an extraordinarily difficult time,” Knapik said.
The secretary argued that the administration’s negotiations resulted in one of the “lowest-cost increase” in state history, and that they occurred before the full breadth of the financial downturn was understood.
Gonzalez also said hadn't seen any studies to show repealing a law governing privatization of government services would result in any “real savings,” after Knapik touted it as a possible cost-saver. The so-called “Pacheco Law” has been a frequent target of Republican ire during previous spending and budget debates.
During the hearing Gonzalez said federal stimulus funds had helped “save states” coping with revenue freefalls, although lawmakers reminded attendees that those one-time funds are “drying up” after fiscal 2011.
Legislators also questioned whether the administration’s reliance on $680 million in federal Medicaid funds, as well as $160 million in Social Security funds owed to the state, but not yet approved by Congress is prudent.
Gonzalez defended their inclusion in the budget, arguing that the Medicaid funds had already been approved by the U.S. House, were backed by the president and set to come up for a vote in the Senate by the end of the month. The other funds, he said, were pending in legislation before both branches.
“We, based on all of that, felt it was reasonable to assume that at least by the end of fiscal ‘11 this would’ve been taken care of,” he said.
Gonzalez said that if a pair of proposed tax-cutting ballot questions are approved later this year the state's tax base would decline by $2.7 billion.
“It would be devastating to the state budget,” he said, noting “about half” of the budget pays for health insurance or human services. Debt service is about 7 percent and local aid “about a quarter” of state spending. He described discretionary spending as “very small” and said those funds had been disproportionately hit with cuts due to what he described as a lack of flexibility to cut other areas of the budget.
He predicted passage of the questions would lead to cuts in local aid and education funding. Supporters of plans to cut the sales tax to 3 percent from 6.25 percent and to repeal the sales tax on retail alcohol sales say their plans will help struggling taxpayers and spur consumer spending.
Responding to questions from Rep. Thomas Conroy (D-Wayland), Gonzalez said there’s no “magic number” for how low the state’s reserve funds can go before bond rating agencies grow concerned. He also said he anticipates that state’s bond rating to remain at AA, a high rating that he credits with keeping borrowing costs down.
An audience of members of the disability community burst into applause when Rep. Robert Hargraves (R-Groton) wondered whether the state’s Supreme Judicial Court Justices should be paying into the state pension system. The justices are currently exempt from contributing, even though they receive full retirement benefits. The governor has filed legislation accompanying his budget proposal that would require the justices to pay into the system, as well as make other changes to the state pension system.
