Tuesday, September 29, 2009

Sometimes the obvious explanation is the correct one

The front page of today's Globe bears more bad economic news for Massachusetts, just days after offering an upbeat assessment of the state's prospects for recovery. It seems state revenues (tax collections, primarily) have come in a few hundred million dollars below projections as of the close of September. "Projections" is the wonk word for "estimates" - the figures that the Governor and Legislature use when planning state spending. From the Globe:
With only two days remaining in September, the state has collected $316 million less than anticipated, according to calculations by the state treasurer based on the actual taxes deposited daily by the Department of Revenue. State revenue officials estimate that $92 million will be collected today and tomorrow, which would leave a shortfall of $224 million.
If you read the paper on a semi-regular basis, you may have recognized already that news of revenues coming in significantly below projections has been a common feature on the front pages for most of the Patrick Administration. The budget writers project high to placate political supporters at budget-writing time. Revenues come in low. That forces mid-year, "emergency" cuts. If revenues continue on the current pace, Governor Patrick will be obligated to make the fourth round of such cuts since the beginning of the year.

Although mid-year cuts are - to use the Governor's favorite words - "difficult" and "painful," they are in fact politically easier to make on an emergency basis than during the budget process, when advocates for particular spending items view any reduction as a considered betrayal. At least during mid-year cuts the Governor and legislative leaders can claim to have no choice.

And of course there will be some extraneous force to take the blame. Since last year, the culprit behind repeated mis-projections has been the national economic downturn. The Globe does Patrick a solid by observing, "The projected revenue drop indicates that the effects of the national recession are still being felt deeply in Massachusetts." It then notes:
Last fiscal year, which ended June 30, revenues dropped billions below initial expectations. Patrick administration officials say they have eliminated about 1,400 positions.
Neither Patrick nor the Globe mentions that in the first year of the Patrick Administration, when revenues came in roughly a billion dollars above expectations, the state still spent nearly a billion more than it took in (or $2 billion over the initial budget). Neither the Globe nor the Patrick administration notes that the "about 1,400 positions" that have been eliminated leaves the state with about 5,000 more employees than it had when Patrick came into office.

Digressions, digressions.

Although there can be no doubt that Massachusetts continues to feel the effects of the national downturn, perhaps there is a closer-to-home explanation for why revenues at the tail end of this year are so drastically failing to meet expectations. Globe:
Revenue dropped despite a controversial decision by Patrick and the Legislature to increase taxes by more than $1 billion, including boosting the state sales tax from 5 percent to 6.25 percent. Retailers warned that the state would not raise nearly as much as estimated, predicting that customers would go to New Hampshire or the Internet to avoid additional taxes.
Bolstering that theory is this item from the State House News Service on Friday:
Retail sales at Massachusetts stores declined precipitously in August compared to the same month in 2008, according to the Retailers Association of Massachusetts, which surveyed its members to gauge the effect of a sales tax hike that took effect on August 1. Although the state won’t release tax collection data measuring sales tax receipts for August until early October, Jon Hurst, president of the Retailers Association of Massachusetts, said his organization’s members reported an average over-the-year drop in total sales of 20 percent in August. “Eighty-eight percent of our membership that replied to this survey were down,” Hurst said. “That’s a pretty striking number. If you cut through it a little more and maybe eliminate some of those that would be less injured – food, restaurants, auto service – that 20 percent jumped to 30 percent.” Hurst predicted the state wouldn’t see an increase in sales tax collections that corresponded to the size of the tax hike, a 25 percent increase from 5 to 6.25 percent. “We want to see it as much as anybody else, but I’ve gotten anecdotal evidence from members that have stores in Massachusetts and New Hampshire, New Hampshire stores were way up in August,” he said. “Not so in Massachusetts, obviously.”
Anecdotal evidence from a political group with skin in the game ought to be viewed with healthy skepticism, of course. But couple the results of the RAM survey with the sudden drop in tax revenues that coincided with enactment of the state's twenty-five percent sales tax hike and... well, as they say, sometimes the most obvious explanation is the correct one.

Tax hikes depress spending. Depressed spending results in decreased tax revenue. Decreased tax revenue = missed projections. Missed projections = emergency, mid-year cuts.

Meanwhile, tonight the Committee for a Democratic Senate holds its annual fundraiser at Joe Tecce's in the North End, with the group hoping to raise $100,000 from lobbyists eager to help it achieve the elusive goal of a Democratic state Senate majority.

Perhaps leadership will realize that 40 of the 45 Senate seats are currently supporting Democrat bottoms, and will decide to donate their haul toward the truly elusive goal of bringing state revenues in line with their budget projections.

1 comment:

  1. Remember when everyone thought the critics of the tax hikes who said that revenues would go down because of those tax hikes were just nuts and right-wing loonies?

    Some of these folks are like the kid who doesn't learn that the hot stove burns and keeps touching it over and over, hoping that reality has changed.


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