Who is a member?
Our members are the local governments of Massachusetts and their elected and appointed leadership.
The turmoil in Washington surrounding attempts to reduce the nation’s budget deficit is raising alarm in cities and towns over the possibility of steep cuts in state and federal aid and increased borrowing costs for local government.
Cuts to local government programs in the federal Budget Control Act of 2011, approved by Congress on Aug. 2, were not as deep as feared. But local officials are worried about a second round of cuts later next year, either from Congressional passage of the recommendations of the Joint Select Committee on Deficit Reduction, or $1.2 trillion in cuts that would be imposed automatically if the committee is unable to agree on a plan and get it through Congress by Dec. 23.
The so-called “Supercommittee” is charged with finding at least $1.5 trillion in federal deficit reduction over 10 years, beginning in federal fiscal 2013. Cities and towns are preparing contingency plans in case of cuts in federal funding to local programs, or if federal cuts to state programs, such as Medicaid and other state safety net programs, result in municipal and education aid cuts.
Municipal officials are also worried about possible increases in the cost of borrowing for local capital projects, ranging from school buildings and water and sewer projects to equipment purchases. On Aug. 5, Standard & Poor’s lowered the U.S. government’s long-term credit rating from AAA to AA+, largely because it felt that Congress and the administration were failing to adequately address the nation’s spending imbalance. In July, the ratings firm Moody’s Investors Service placed the rating of 162 local governments nationwide, including 14 in Massachusetts, on review for a possible downgrade from Aaa (Moody’s top rating).
“The ratings of these local governments, particularly those with high economic dependence on federal activity, would be vulnerable to a downgrade of the U.S. government,” Moody’s wrote.
The ratings firm was including borrowers that do not receive much federal revenue directly, but are indirectly linked because local employers – such as hospitals, universities and military-related contractors – are supported by federal funds.
While municipalities put on notice by Moody’s are watchful about what could happen to ratings and borrowing costs down the road, there remains a high level of confidence locally in the underlying municipal financial and management capacity and the ability to avoid a lower rating.
Speaking to the Taunton Daily Gazette, Massachusetts Taxpayers Foundation President Michael Widmer said that cities and towns are more vulnerable to cuts in federal spending that could result from deficit reduction than they are to possible reductions in bond ratings.
New Bedford Mayor Scott Lang, president of the Massachusetts Mayors’ Association, said the country could be headed for “a double-dip recession,” which would mean further cuts in local government jobs and services, unless leaders in Washington redirect their focus to getting the economy moving forward.
“We’re not going to cut our way to prosperity,” Lang said in an interview. “The Supercommittee should be dealing with how to get the economy growing again. If you want to cut the deficit, you create jobs, you expand the tax base, you bring about new growth.”
He added that “pandering” in Washington has destroyed consumer confidence and hurt America’s image in the world. He suggested large-scale federal investments in the nation’s aging and inadequate infrastructure, the backbone of economic growth.
“There’s a ton of work to do,” he said. “Let’s put people to work.”
MMA President Josh Ostroff, a selectman in Natick, said that even communities that receive little or no direct federal funding face very real consequences from “drastic budget cuts or indecisive leadership” in Washington.
“For example, bond rating services are unlikely to maintain local government ratings more than a single grade higher than the federal government, so a credit downgrade at the federal level will result in higher borrowing costs even for creditworthy communities,” he said.
He added that Washington’s singular focus on deficit reduction is counter-productive. Deep cuts to education and infrastructure programs, for example, will reduce America’s ability to compete in the world economy.
“We have political gamesmanship when we really need leadership,” he said.
Citing Keynesian economic theory, Sherborn Selectman Paul DeRensis, president of the Massachusetts Selectmen’s Association, said reductions in domestic federal spending at this time could undermine the still-fragile economic recovery. Coming on top of years of local aid cuts and burdensome unfunded federal mandates, he said, further federal cuts would be particularly harmful to Massachusetts cities and towns, saddling them with even more passed-along costs and putting more pressure on local property taxpayers.
“If the state of Massachusetts gets less money from the federal government,” he said, “or has to spend more to borrow, that means more pressure to delay restoring local aid back to reasonable levels after all the cuts that have taken place in recent years.”
The 12-member Congressional Deficit Committee includes three Democrats and three Republicans from the House and three of each party from the Senate. U.S. Sen. John Kerry of Massachusetts is a member. At least one member of either party will have to vote with the other party in order for the committee to approve, by a simple majority, a recommendation by its Nov. 23 deadline.
If Congress does not approve a deficit reduction bill by Dec. 23, the debt ceiling could be increased again, but across-the-board spending cuts, equally split between security and non-security programs, would be implemented automatically. The across-the-board cuts would apply to mandatory and discretionary spending in the years 2013 to 2021, and they would be in an amount equal to the difference between $1.2 trillion and the amount of deficit reduction that is enacted.