From The Beacon, January 2011, Vol. XXXVII, #1

After a post-election pause of more than two months, the governor will renew his oath of office and the Legislature will be gaveled back into session during the first week in January. There will be no lull in the action, as state leaders face a long to-do list. The central issue looming above all others will be figuring out how to close the state’s gigantic budget gap for fiscal 2012.

The warning signs have been hovering around us since last summer. More than $1.5 billion in one-time federal aid will be disappearing in July. State Medicaid caseloads have been increasing so much that Medicaid-funded health care for Massachusetts residents will devour more than $10 billion of the $30 billion state budget. Several tough budget years have left few, if any, stones unturned. There are no unexplored solutions lying around.

The good news is that fiscal 2011 revenues are $500 million higher than expected, a trend that’s expected to continue into next year. The not-so-good news is that increased human service caseloads are creating a deficit that will offset the unexpected revenue growth.

On Dec. 14, state officials and economists gathered for the annual “consensus revenue hearing” to seek input that will shape the revenue forecast for fiscal 2012. That revenue prediction will create the framework for the governor’s and Legislature’s fiscal blueprint. All of the experts who testified said that state tax revenue growth will be significantly higher next year, a good sign that distinguishes Massachusetts from most other states. That growth, however, will not be enough to close the state’s structural budget gap. Not even close.

The governor’s budget chief testified that his expectation is that House One (Gov. Deval Patrick’s budget, which will be filed on Jan. 26) will have to reduce spending by $1.5 billion. The Massachusetts Taxpayers Foundation pegged the deficit a bit higher, at $2 billion.

State leaders are already warning that everything, including local aid, will be “on the table” as they consider what to cut. To municipal officials, that phrase sounds more like “on the chopping block.” Again.

Local leaders have experienced three straight years of difficult and painful cuts in municipal aid. Those cuts have triggered deep reductions in core local services, including education, public safety, public works, libraries, youth and senior programs, and other key areas. Communities have been forced to give pink slips to thousands of employees, freeze wages, implement furloughs, extend pension funding schedules, and increase reliance on the property tax.

More cuts in local aid will force more of the same – and economists all agree that further reductions in municipal services will slow down our recovery from the recession.

Municipal officials are realists. They know that local aid is vulnerable during the upcoming budget debate. But it is vitally important to point out the facts: cities and towns have seen their municipal aid cut much more deeply than the state budget as a whole. By a wide margin.

The actual numbers make it clear that communities have not been spared or favored. Indeed, the cuts have been exceedingly deep. Since fiscal 2008, overall state spending has increased by 3 percent, even as state tax revenues declined by 9 percent. During that same time period, direct municipal aid (including unrestricted general government aid, Quinn Bill funding, community policing line items and grants, library aid, veteran’s benefits, PILOT funds and tax abatements) has been slashed by 32 percent. These vital aid accounts are $486 million lower today than in fiscal 2008.

Municipal aid has declined from 5 percent of state spending to just 3 percent of the state budget. But even this calculation is generous. Lottery revenues are really a municipal revenue source. If we look at the state tax appropriation (not Lottery funds) that goes to municipal aid, since fiscal 2008 there has been a whopping 72 percent cut in state tax revenues devoted to local aid.

Why is it important to know these facts? Because state leaders need to recognize that municipal aid has been cut more deeply than almost any other area of the budget. Repeating this pattern will clearly harm communities, local taxpayers, and the essential services that make our economy grow and expand.

Cities and towns are balanced on a razor’s edge, and municipal aid must be protected to the maximum level possible, which is why we ask all state leaders to do their best to advocate for and protect the local aid that remains.

In recent columns, we’ve addressed the other key priorities that are on the short list for action in 2011: finally passing municipal health insurance reform by giving communities plan design authority outside of collective bargaining; investing in a desperately needed reauthorization of Chapter 90 funds for local roads and bridges at $300 million a year; and revamping and expanding the state’s support for state-mandated special education services. Yet we all know that even as these priorities advance – and they should – the state budget will dominate headlines, and the fate of local aid will dominate deliberations in town and city halls across the state.

The new year has come. It’s ready, set, action at the State House. Let’s all work together to make 2011 as productive and successful as possible for both local and state government, which means passing a budget that meets state and local needs.

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