Mass. wealthy again, but any the wiser?
16 June 2004
Ah, it's nice to be rich again.
It seems like just a few months ago - actually, it was just
a few months ago - that
It was during the 2002 gubernatorial campaign, remember, when the state's nagging budget shortfalls transmogrified into a crisis. In the span of five months, projected deficits ballooned from a September estimate of $1 billion to January 2003's figure of $3 billion. Revenues were in a free-fall and analogies to the Great Depression were common. "We face the most difficult year in state fiscal history since the 1930s," said budget chief Eric Kriss. The Massachusetts Taxpayers Foundation called it the "Perfect Storm Unleashed," one brought about by simultaneously declining revenues and rising expenses.
In late February 2003, a grim Mitt Romney addressed the state, laying out the cold, hard realities. It was a depressing time. As we watched at home, our rooms seemed a little colder, the fake-wood fire burned less brightly and the glow of the television screen was a tad dimmer as we girded ourselves for the difficult days ahead.
And now? To the apparent surprise
of most everyone, the storm has broken and it's sunny once again. Revenues over
the last few months jumped unexpectedly, leaving a surplus for this year of
$495 million. And it's only going to get better. As I
wrote in a column last December that predicted this surplus (and yes, I know
I'm patting myself on the back here, but it's a rare opportunity and one
quickly seized), "
One short-term effect of the surplus has been to make the crafting of next year's budget relatively easy. Inevitably, as well, the talk has begun to focus on what we should do with our newfound wealth. Spend more? Tax less? How about both?
All of which has a disheartening ring to it, for we've heard the same debate many times before. It sounds as if we are doomed to repeat history.
State finances rise and fall precipitously with the changing fortunes of the national economy. In good times, tax collections are up while demand for services falls. The reverse happens during bad times. In other words, every recession brings about a "Perfect Storm." And every recovery creates its opposite - let's call it, a "Day at the Beach."
There's a solution to this, one that much-maligned House Speaker Thomas Finneran has made the hallmark of his eight-year rule: Save it. Don't rush to spend the money or cut taxes. Instead, put most of it into a rainy day fund.
Finneran's efforts to build that fund helped the state greatly over the last three years, but an even bigger fund would have been that much the better.
This seems eminently sensible, in a schoolmarmish sort of way. It would be nice to believe that the Finnerans of the world could have their wishes, allowing state government to plow steadily through the fiscal sea as the waves rose and fell about it. Yet I suspect that won't happen.
Chalk some of that up to human nature: When you're sunning yourself on the beach, it's hard to take seriously the guy who's carrying an umbrella. I've lived through five recessions and my recollection is that usually about a year before each recession begins, economists and other self-styled experts begin to speculate that, perhaps, we've licked this economic-cycle problem once and for all. They give solid reasons for their wishful thinking (last time around, it had to do with improvements in information flows). Yet every time they're wrong. Every time a recession arrives we sit, stunned, unable to believe what hit us.
Chalk some of it up to politics, as well. Politicians love to spend money and cut taxes, and voters love it when they do. The latest proof of that is the once tight-fisted Romney who, leaping on the good revenue news, has been pushing to boost local aid, spend more on roads and bridges, and cut the income tax to 5 percent.
There's another factor too. Just like the economic cycle, the boom-bust cycle of state spending may be a necessary corrective. Over time - and especially when things are good - government becomes inefficient, wasteful and sclerotic. Budget crunches serve as a purgative, giving determined pols an opportunity to push reforms and force us to come to grips with our spending priorities. That, of course, often comes at a huge cost; a lot of baby can be thrown out with the bathwater. Yet, unless someone invents a way for people to tighten their belts while still gorging, don't be surprised - say 10 years from now - to see yet another governor giving yet another gloomy speech about tough times ahead.
Talk back to Tom Keane at tomkeane@tomkeane.com.