Friday, October 10, 2008

Policy Tracker

Economists: Mass. faces long financial impact

Economists and Wall Street executives delivered hard news Tuesday to Bay State government leaders considering reserve drawdowns to buttress against dramatic budget cuts and hoping markets will turn around in time to salvage next year’s spending plan.

House Speaker Salvatore DiMasi warned that the state could reduce its assistance to cities and towns, a measure he called a “last resort.”

Chair of the House Ways and Means Committee Rep. Robert DeLeo said the most optimistic prediction for an end to the financial problems pegged a recovery to next autumn, and that economists warned of three years of sparse budgets. The state’s rainy day fund held $2.33 billion in fiscal 2007. Under the current budget, the account is projected to drop to $1.94 billion this fiscal year, but it would decline further if officials use the reserves to minimize deeper cuts.

Gov. Deval Patrick is preparing “hundreds of millions” in midyear budget cuts that will likely become public next week, after the state’s fiscal 2009 revenue estimate is lowered, potentially throwing the budget more than $1 billion out of balance without corrective measures.

Treasurer Timothy Cahill said Tuesday that Patrick is not moving swiftly enough to rein in spending. Cahill on Tuesday again delayed a planned $750 million borrowing against anticipated revenue, explaining that the credit markets made borrowing imprudent. Later, he said the state could issue some of the notes this week.

DiMasi said the economists agreed that the Massachusetts economy was better prepared to withstand the downturn.

Three months into the fiscal year, the operating budget has proved excessive for the state’s income. DeLeo stood by the budget, which passed the House on a party-line vote, and said Republican criticism of the budget did not foresee the scope of current economic problems. In an unusual move in July, House Republicans voted unanimously against the fiscal 2009 spending plan.

 

— State House News Service