Two Articles - Same Newspaper

 Article 1:September 19, 2018

S&P says Massachusetts reserves too thin to weather a recession

By Colin A. Young, State House News Service

Posted Sep 19, 2018 at 4:04 PM  

Updated Sep 19, 2018 at 4:04 PM

BOSTON — A decade after the collapse of investment bank Lehman Brothers and the financial crisis it triggered, analysts say only 20 states are well-positioned to handle the first-year shock of a recession with their reserves — and Massachusetts is not one of them.

A report from S&P Global Ratings this week placed Massachusetts at an “elevated risk” of financial distress during a hypothetical recession, one of 15 states that analysts said are the most poorly situated in the event of a new and prolonged downturn in the economy.

“Widening federal budget deficits and a still-low federal funds rate imply that the economic and fiscal brunt of the next recession is likely to fall more squarely on the states,” S&P analysts wrote, adding that state economies “could be challenged as never before by the next recession.”

To assess a state’s ability to respond to a recession, S&P considered a “moderate” recession in which the states experience a cumulative budget shortfall of $71.1 billion or 9.9 percent of revenues, and a “severe” shortfall of $84.7 billion or 11.8 percent, both exceeding the 8.1 percent year-over-year tax revenue decline between 2008 and 2009.

Massachusetts could expect to experience a 10 percent revenue shortfall under S&P’s moderate scenario and a 13 percent shortfall under the severe scenario. The state’s reserve fund could cover 62 percent of the shock of the first year of a moderate recession and 50 percent in a severe recession, S&P said.

The state’s reserves as of Aug. 1 stood at $1.3 billion, according to the state’s early August information statement. But House Speaker Robert DeLeo said this week that a $400 million deposit into the reserve fund this budget cycle meant the fund balance was “approaching something like $2 billion.” When Gov. Charlie Baker signed the newest state budget in July, his budget office estimated that fiscal 2018 would end with an estimated $1.78 billion in reserves.

“Unfortunately, things aren’t always going to be as rosy as they may be at this present time,” DeLeo said Monday night during an appearance on WBZ-AM. “You always have to be prepared, be prepared in terms of a possible recessionary period.”

In order to manage through the hypothetical recession, S&P said Massachusetts and other similarly-positioned states would have to make “fiscal adjustments that go beyond drawing from accumulated budget reserves alone.”

Though the credit rating agency warned many states are not prepared for a recession, it also said a recession is not likely to hit states in the next year.

“With GDP growth accelerating through mid-2018, S&P Global Ratings estimates the odds of a recession occurring during the next 12 months are even lower, in the range of 10% to 15%. Similarly, throughout 2018 state fiscal health has stabilized and strengthened,” the agency said.

DeLeo said he was “very excited” that the rainy day fund balance was growing.

“Not only is it a good sign of good fiscal management, it’s also again important should we hit a time when those funds may be necessary to take care of the most neediest amongst us,” he said on Monday.

In June 2017, S&P Global Ratings lowered its rating for Massachusetts bonds to AA from AA+ and admonished the state for its approach to savings.

“The downgrade reflects what we view as the commonwealth’s failure to follow through on rebuilding its reserves as stipulated through its own fiscal policies aimed at mitigating the state’s propensity for revenue volatility,” S&P Global Ratings credit analyst John Sugden said at the time.

Michael P. Norton contributed reporting.

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Article 2:

Massachusetts has a $1B surplus; why no hurry to spend it?

By Bob Salsberg, The Associated Press

Posted Sep 22, 2018 at 8:52 PM  

Updated Sep 22, 2018 at 8:52 PM

BOSTON — It seems a reasonable assumption that Massachusetts politicians would eagerly find ways to spend more than $1 billion that — in a manner of speaking — is just lying around on Beacon Hill.

Not so, apparently.

Nearly three months after the state’s previous fiscal year ended with a sizeable revenue surplus, the Democrat-controlled Legislature has yet to act on a plan for how to use that unanticipated cash and officially close the books on fiscal year 2018.

Republican Gov. Charlie Baker filed a so-called supplemental budget with lawmakers in July that includes spending about $150 million of the surplus to enhance school safety and other education initiatives.

The Legislature ended formal sessions for the year Aug. 1 without acting on the measure. While lawmakers continue to meet informally, only routine or uncontested bills typically advance during informal sessions.

The budget is stalled even as many candidates on the November ballot push for greater investment in things like transportation, education and opioid treatment.

A closer look:
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HOW DID WE GET HERE?

Massachusetts revenue officials say the state collected about $28 billion in taxes during the fiscal year that ended June 30. The total exceeded by more than $1.1 billion the projections on which the state had based its budget for the year, thereby creating a surplus.

Experts cautioned that the windfall, coming after several years of disappointing revenue performance, likely resulted from one-time taxpayer behavior and can’t be counted upon to repeat in future years.
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BAKER’S PLAN
Legislation filed by the governor July 13 called for spending roughly half the surplus and depositing the rest into the state’s rainy day fund.

The administration proposed using $72 million to help make public schools safer in the aftermath of school shootings nationally, including the Feb. 14 attack that killed 17 people in Parkland, Florida. The plan includes $20 million to upgrade security and emergency communications in school buildings and $40 million for school districts to hire additional social workers and mental health counselors.

Also in Baker’s proposal: $30 million in “intervention and turnaround efforts” in districts with chronic student achievement gaps; $50 million for road and bridge repairs; $94 million to fund collective bargaining agreements with state workers; $48 million for unfunded retiree health costs; and $5 million in housing assistance for people who came to Massachusetts from Puerto Rico after Hurricane Maria.

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WHAT HAPPENED NEXT?
Baker’s plan was introduced at a time when lawmakers were still grappling with an overdue budget for the new fiscal year that started July 1. They also were scrambling to complete work on other major bills before formal sessions ended.

The supplemental budget did not come up for a vote. It remains under consideration by the House and Senate Ways and Means Committees.
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WHERE THINGS STAND
House Speaker Robert DeLeo and Senate President Karen Spilka both said after a recent private meeting with Baker they remained committed to acting on the surplus.

“I know we will get it done as soon as we can,” Spilka said without providing a timetable.

The Legislature isn’t bound by the governor’s recommendations and could formulate its own plans for spending the extra cash. But it’s unlikely to be an easy process.

Under legislative rules for informal sessions, only bills with universal support can be enacted. A single dissenting vote would be enough to derail the measure. And it’s hard to imagine nearly 200 legislators fully agreeing on what to do with more than $1 billion.

Disagreements on spending priorities are likely. Some lawmakers may seek funding for projects in their own districts. There may well be calls for financial assistance to victims of the Sept. 13 gas explosions and fires in the Merrimack Valley. Republicans might demand a portion of the surplus go to tax relief.

Further adding to the uncertainty is that both the House and Senate budget-writing panels are in transition.

House Ways and Means Chairman Jeffrey Sanchez will leave office at the end of the year after being defeated in the Sept. 4 primary. Senate Ways and Means has been without a permanent chair since Spilka was elevated to the presidency in July.
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DEADLINE TO ACT?
By law, the state comptroller is required to file what is called the Statutory Basis Financial Report by Oct. 31, a document that officially closes the books on the state’s previous fiscal year.

But that deadline has been missed before. In fact, it was missed just a year ago when a supplemental budget wasn’t signed into law until Nov. 3.