Sales tax ballot question threatens local aid

Municipal and school aid programs in the state budget could face more than $600 million in new budget cuts next year if voters approve a ballot question on Nov. 2 to reduce the state sales tax rate from 6.25 percent to 3 percent, according to the governor’s budget office.

Local aid accounts would also be in jeopardy during the current year if Question 3 passes, as the state would face a major loss in revenue midway through the fiscal year.

The cuts for next year would be on top of more than $800 million in cuts that have already been made by the governor and the Legislature since the economic recession first hit Massachusetts in 2008 and more than $300 million in potential cuts as the state confronts a fiscal 2012 budget gap as temporary revenue used to balance the budget this year, mainly federal funds, is exhausted. (The Massachusetts Taxpayers Foundation is projecting a fiscal 2012 structural budget gap of $2.5 billion.)

Question 3, which would take effect on Jan. 1, 2011, would reduce state tax collections in the current year by an estimated $992 million. Beginning in fiscal 2012, the first full fiscal year that would be affected, tax collections would drop by more than $2.5 billion.

A simulation of the possible impact of Question 3, conducted by the governor’s budget office, projects that Chapter 70 education aid would be cut by $464 million. Coupled with a possible cut due to the state’s budget gap, school funding could drop by $727 million, or 18 percent.

The main municipal aid account (Unrestricted General Government Aid) would be cut by $103 million due to the tax cut, on top of the impact of the budget gap, according to the simulation. This and other smaller municipal and school aid accounts could face total cuts of as much as 18 percent.

The simulation uses some simple assumptions about how state policymakers might allocate the loss of more than $2.5 billion in state tax revenue next year. It does not reflect any decisions or plans that have already been made and does not include alternative approaches that the governor and Legislature might propose.

The simulation assumes that proportional cuts would be made to all state budget accounts, except where cuts would run into conflict with legal obligations and in a few other limited circumstances. Debt service would not be cut, for example.

The largest cut in the simulation would be imposed on the state’s MassHealth account, which would lose almost $1.1 billion, including the Medicaid match for the state appropriation. Human service accounts would lose about $525 million.

The simulation does not reflect any agreement by the MMA or any other group to support the cuts. Following three straight years of local aid cuts, the MMA will strongly oppose any further cuts.

• Question 3: Initial Simulation of Potential Impact on Main Municipal and School Aid Accounts, by community (80K Excel file)