Tufts Center: Pandemic budgeting calls for creativity

Boston Statehouse

BOSTON (SHNS) – The COVID-19 pandemic is a unique event that is sure to rock the state budget and overall financial picture for years to come, and it might take some creativity and outside-the-box thinking from policymakers for Massachusetts to address both the need for individual and business aid and the state’s need for a stable budget.

That’s the conclusion of a new report that the Center for State Policy Analysis at Tufts University published Monday morning to assess how Massachusetts, which has to maintain a balanced budget, might be able to assist residents and businesses struggling financially as a result of the pandemic while also addressing a widening state budget deficit.

After talking the situation over with economists and state budget experts, the center suggested a suite of possible policy responses, including setting up a commission to roll back regulations on the hardest-hit industries, creating a surtax on healthy businesses to help at-risk ones, and increasing the state’s income tax rate temporarily.

“There may be no such thing as a free lunch, but there is a range of more and less affordable ways to nourish residents during this crisis. And given the dire condition of the state budget, Massachusetts has to be deliberate — and creative — about its approach,” the report said.

Through 11 months of the fiscal year, Massachusetts tax collections are running $2.253 billion short of expectations for the year and the plan for addressing the shortfall — whether it’s covered with the help of federal bailouts or by tapping into the state’ $3.5 billion rainy day fund — remains unclear at this point.

And instead of haggling over the differences between the House and Senate budgets, which typically keeps the Legislature busy through June, legislative budget writers are still working to concoct a budget plan for fiscal year 2021, which starts July 1. Many people expect the state will start the next fiscal year with a series of one-month budgets.

“Massachusetts has noted potential fiscal 2021 pandemic-related tax revenue gaps ranging from $2 billion to $8 billion off the January consensus, based on legislative and outside groups’ estimates. Budget agreement for fiscal 2021, which begins on July 1, is likely to be delayed into the new fiscal year, although the Commonwealth routinely passes interim budgets to authorize continued spending until budget consensus is finalized,” Fitch Ratings wrote last week in a report that gave $1.4 billion in state bonds a AA+ rating and stable outlook. “Fitch expects the Commonwealth will ultimately reach consensus on a plan that matches spending to available revenues while maintaining sufficient flexibility to absorb further weakness.”

Evan Horowitz, executive director of cSPA, said lawmakers would have to dive more deeply into the ideas presented in center’s report before adopting them, “but they represent some of the many creative options available to lawmakers as they look to address the budget challenges brought on by the COVID-19 pandemic.”

To help stimulate the economy, Massachusetts could setup a “bipartisan commission focused on deregulation for genuinely small businesses — perhaps those with fewer than 50 employees,” like restaurants and small retailers who were forced to close and have seen customer foot traffic evaporate. The report suggests giving restaurants more latitude to establish outdoor dining areas and allowing retailers to go fully cashless.

Borrowing from an idea that has gained some traction in California, the center suggests that lawmakers study the idea of offering loans to renters and long-term tax breaks for landlords. The proposal would essentially turn the state into a third-party lender.

“Any renter at risk of missing a payment could get state-backed rent reduction and eviction protection, in exchange for a commitment to repay missed rents (to the state) over 10 years,” the report’s authors wrote. “Meanwhile, landlords who offer appropriate rent relief would get offsetting tax credits from the state, fully transferable and spread over that same 10-year period.”

Though it might be less-palatable to lawmakers, especially during an election year, the center also suggests that Massachusetts alter its tax code in order to impose a surtax on companies that are earning greater profits during the COVID-19 pandemic and to increase the state’s 5 percent income tax rate.

“Perhaps the most straightforward way to fund economic aid — or to avoid cuts to vital programs — is to temporarily increase the state’s income tax,” the report said. “With this approach you can raise substantial funds in a very precise way, without needing to design a new program or setup a new collection system.”

How the state uses the roughly $2.7 billion in coronavirus relief funds that the federal government has dedicated to the Bay State will also be key to state’s budget management efforts over the next several weeks and months.

Lawmakers in North Carolina passed a law that formed a temporary office dedicated to helping the state manage federal COVID-19 relief resources and in neighboring Rhode Island, Gov. Gina Raimondo is setting up a Pandemic Recovery Office modeled after the offices many states established to oversee funding that came about as a result of the American Recovery and Reinvestment Act of 2009.

“The state has received more than a billion [dollars] in federal aid that must be expended by the end of the calendar year, [and] ensuring we spend these funds transparently and within time constraints is critical to the state’s response efforts,” a Raimondo administration spokeswoman told WPRI last week.

Massachusetts had its own Recovery and Reinvestment Office in the wake of the global financial crisis, but it is unclear whether the Baker administration plans to stand up another similar office to oversee the economic recovery from the pandemic.

Asked Monday whether the administration was working on establishing such an office, a spokesman from the Executive Office of Administration and Finance noted that the Baker administration has announced plans to distribute $502 million in Coronavirus Relief Fund money to municipalities and recently hired Heath Fahle as special director for federal funds. The spokesman said Fahle’s job is specifically focused on COVID-19 relief funding.

The administration did not directly answer whether a pandemic recovery-type office is in the works.

As the Legislature considers all of its options, the Center for State Policy Analysis report also suggests that it should think about intentionally doing something it is often criticized for: kick the can down the road.

“That’s usually a metaphor for irresponsible governance, and cavalier can-kicking can be a way of foisting problems onto future politicians and future taxpayers,” the center concluded. “But these are unusual times, and there are undoubtedly issues we will be better positioned to address tomorrow.”

Copyright 2020 Nexstar Broadcasting, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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