State budget chief says mandatory spending will outpace taxes

A projected jump in state tax collections next fiscal year of more than a billion dollars will likely be outpaced by “mandatory spending” in four major areas, according to the House budget chief, who is also warning of “dwindling” opportunities for creative solutions to state budget problems.

In a budget update letter to House members Tuesday of last week, House Ways and Means Committee Chairman Rep. Brian Dempsey (D-Haverhill) said the state’s new fiscal 2013 tax revenue estimate will give budget writers $940 million more than this year’s estimated tax revenue. The estimate of new revenue is more than a billion dollars, or 6.9-percent higher than the original estimate used to build this year’s budget.

But even though Patrick last summer claimed the state had erased its longstanding structural budget gap, it appears the expected infusion of taxpayer funds won’t meet state’s expected spending demands.

In his letter, Dempsey, mirroring the pre-budget warning signals from the governor’s office, wrote, “These funds, while important, are almost certain to be eclipsed by well publicized increases in mandatory spending including Medicaid services for low-income and disabled residents, debt service, public pensions and collective bargaining agreements.”

Gov. Deval Patrick’s budget chief Jay Gonzalez last week cited the same four spending areas as on track to swallow up new revenue, and then some, leaving the rest of state government on pace for an overall reduction in spending, with limited increases and “many, many” programs level-funded, some slashed, and others eliminated altogether.

Patrick plans to release his fiscal 2013 budget next Wednesday and municipal officials are hoping for a preview of his approach to local aid when Patrick speaks at a conference in Boston Friday morning.

Patrick’s budget chief, Jay Gonzalez, said last week that Patrick’s budget bill will call for unspecified new revenues, but Gonzalez has previously ruled out inclusion of a broad-based tax hike in the spending plan.

House Speaker Robert DeLeo may address tax burden issues in an address planned later this month, but on Wednesday told the News Service he was not yet prepared to take a firm position on new revenue as he did last year when he ruled out new taxes and fees in late January.

“That’s one of the things I’m preparing to take a look at. I first want to see what the governor has done and after that I’ll have a comment on that,” DeLeo said.

During debate Wednesday on a $131 million spending bill that would boost fiscal 2012 midyear spending to about $282 million, Dempsey noted the state recently added $350 million to its rainy day account, bringing its balance up to $1.5 billion. But he cautioned the economy is recovering at a “very, very, very slow pace.”

“We are still not out of the woods in terms of our finances,” Dempsey said.

The fiscal 2012 budget weighed in at $30.5 billion when Patrick signed it last summer.

In his own brief floor remarks, Assistant Minority Leader Rep. George Peterson (R-Grafton) said he supported spending in the $131 million bill on county sheriffs, adult day health programs and low-income heating assistance. But Peterson called it “astounding” that state government’s fixed costs are on pace to fully consume anticipated new revenues. Forecasting tough decisions about entitlement programs, Peterson said the state needs to “get back to a budget that is sensible.”

In his letter, Dempsey cited two other developments, one involving the loss of tax revenue and the other calling for new spending, as adding pressure to the budget. Reductions in the income and corporate taxes on January 1 will subtract between $126 million and $132 million from the state’s coffers and a recent high court ruling will require the state to restore legal immigrant health coverage at a $150 million annual cost.

With Gov. Patrick a week away from releasing his latest annual spending plan, the governor’s office has declined to estimate the gap between projected state spending and revenues, though Gonzalez last week predicted level-service spending demands would grow by $1.6 billion.

Senate budget chief Stephen Brewer last week estimated an $800 million to $900 million gap. Dempsey, in his letter, suggested it could be even higher, saying “it remains to be seen” whether the gap is as large as the $1.5 billion fiscal 2012 chasm.

While noting “our opportunities for creative solutions are also dwindling,” Dempsey didn’t stake out any ground in his letter on his budget-balancing preference, whether it be spending cuts or new revenues or taxes. The state’s 2009 sales tax increase was its last broad-based tax hike.

Huge amounts of federal stimulus law funds helped the state bridge major budget gaps during and since the recession, but those funds have been exhausted and the state is receiving mixed signals from Washington about aid levels, with warnings of deep cuts coupled with a new three-year commitment to boost spending on Medicaid, the state’s biggest program, by $5.7 billion, or 26 percent.

Dempsey said the fiscal 2012 state budget, midway through the fiscal year, is meeting benchmarks, an indication that “it will make it through the year in balance.”