BOSTON (SHNS) – Wall Street has experienced its worst days since 1987. Bars, restaurants and retail stores have cut way back on business. And state economists are predicting that a global recession is a “virtual certainty.”
All of this adds up to uncertain times for those responsible for managing and crafting the state’s budget in the midst of a viral pandemic as they prepare for tax collections to drop off significantly and social service programs like Medicaid to see a surge in enrollment. But by how much and for how long they do not know.
Rep. Aaron Michlewitz, the North End Democrat who chairs the House Ways and Means Committee, has the brightest spotlight on him at the moment, with the House supposed to go next in the four-act play that is the annual budget process on Beacon Hill.
Gov. Charlie Baker filed his spending plan for fiscal 2021, which begins on July 1, in January, and Michlewitz is supposed to release his version next month for the House to debate. That now appears unlikely to happen.
“Were dealing with an unprecedented situation and people are having to put a lot on hold. We’re seeing it all over the country, in all different segments of the economy. The budget process will not be any different,” Michlewitz said in an interview with News Service on Monday night.
“We’re not ready to make a determination, but it would seem highly unlikely that we would have a budget in April at this point in time,” he said.
The challenge for budget-writers is two-fold. First, they must try to predict how the economy will respond to massive closures and businesses moving to remote work for an unknown period of time. Second, it’s unclear how legislators would be able to convene to debate and vote on a $44.6 billion spending plan when public health officials are preaching “social distancing.”
Michlewitz, Senate Ways and Means Chairman Michael Rodrigues and Administration and Finance Secretary Michael Heffernan had a conference call on Monday to begin discussions on contingency plans for the state budget.
The conversation was “preliminary,” according to one person familiar with the call, but the three discussed how they could collaborate on the fiscal 2021 budget in ways that don’t traditionally take place.
Options floated during the call included collectively settling an new revenue estimate, pre-conferencing or partially pre-conferencing the budget so that leaders in both branches are in broad agreement before it goes to the floor of either branch, or having the governor file a one-month spending extension now to keep government running through July to give legislators more time to adjust and plan for an uncertain future.
“It’s most likely not going to be a traditional budget cycle,” Michlewitz confirmed.
In the meantime, Michlewitz said he has continued to have phone conversations with individual lawmakers about their budget priorities, but admits that those conversation have ended up focusing as much on coronavirus response as the fiscal 2021 budget.
Asked about the state’s ability to meet its commitment to boost K-12 education funding under a law passed last year, he said, “I’m concerned about every facet of the budget. We were having conversations and we were hoping to send a strong message in the first year of that landmark legislation and that’s certainly still the hope, but we have to be honest with ourselves that everything needs to be thought of in a different way.”
The governor’s budget office declined to discuss steps it was taking to prepare for next year’s state budget, as well as the potential for revenues to crater over the final four months of the current fiscal year. The Massachusetts Taxpayers Foundation estimated Tuesday that revenues this year could miss the current budget benchmarks by as much as $500 million.
A week ago, Baker said it was “impossible to figure out at this point in time” what the financial impact would be, and suggested that while some businesses would suffer, others might prosper during the crisis.
“Because some of it’s really hard to predict, I think the most important thing I would say, and we were talking about this earlier today, is in addition to the Legislature appropriating the $15 million we have been very good over the last several years of managing our own fiscal affairs, and as a result, we have $3.5 billion available to deal with rainy days,” Baker said.
Two experts who worked in and close to state government during the last recession said the timing of this potential fiscal crisis makes it unlikely that the governor will be able to cut his way out of it if revenues fall off dramatically.
“They have reserves. The collapse is really coming in the last four months of the year, so you really can’t cut spending much at this point in the year,” said Michael Widmer, former head of the Massachusetts Taxpayers Association.
Having worked closely with state government during two recessions, Widmer said his advice would be for state legislators and the administration to be conservative.
“This will happen faster than people are likely to anticipate, and I think in this case it may even be faster still given how fast the economy has collapsed,” Widmer said. “My advice would be to be as realistic as possible on revenue so you don’t have to keep revising down. Better to take the pain in one bite.”
Jay Gonzalez, an attorney at Hinckley Allen who served as budget secretary under Gov. Deval Patrick during the Great Recession in 2008 and 2009, said that during that crisis, caused by the collapse of the mortgage markets, the state saw a surge in people enrolling in MassHealth and seeking food, shelter and other services.
Gonzalez also noted that the state received billions of dollars over several years in federal stimulus money to plug holes in the budget, including increased Medicaid reimbursements.
“What’s in the stab fund now wouldn’t even cover what we got from the stimulus,” Gonzalez said.
The one-time gubernatorial candidate said he believes the administration should be working with legislators right now to revised current revenue estimates, and convene the state’s economists to try to predict what will happen to the economy if the crisis persists for weeks or months.
“I think the impact could be massive,” Gonzalez said. “This is clearly an unprecedented health emergency. The social distancing orders have brought our economy from 100 miles an hour to zero and we’re seeing the economic impact, not just the stock market, but people are getting laid off. I’m worried we don’t totally have our arms around how bad the economic impact will be.”
Gonzalez said the Patrick administration brought in consultants and a group of inter-agency leaders to begin planning for how to spend federal stimulus dollars before the American Recovery Reinvestment Act even passed. He said leaders today should be advocating for federal support to the states.
“You have to be nimble. You have to be flexible. You do your best to anticipate what’s to come, but you can’t always anticipate what’s to come,” Gonzalez said. “No one should blame anyone, but what we should expect from the governor and his team is staying on top of what happens and having contingency plans in place to deal with it.”
Michlewitz said the idea of calling in economists to help them predict where the economy is moving is under consideration. The House leader said he expects the Department of Revenue to share mid-month March revenues either Wednesday or Thursday, but he said those will likely fail to capture the effect of the social distancing measures put in place just over the last several days.
“All different options are going to have to be on the table for us to proceed. We’re in unprecedented times and we may have to take different approaches to how we get to the finish line,” he said.
If there is a silver lining, Widmer said, it may be that the economic slowdown has been caused by government actions to slow the spread of the coronavirus, and that the economy could rebound quickly once the pandemic passes.
“One piece of possible good news is this may not be a sustained recession because it’s tied largely to a pandemic, not to underlying economic conditions,” Widmer said.