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« The Fix We're In: Jacob Hacker on the "Great Risk Shift" hitting home | Main | The Fix We're In: David Weil on transparency and the economic crisis »

October 19, 2008

The Fix We're In: Stephen Crosby on budgeting in an economic crisis

With the stock market nosediving, credit lines freezing, retirement savings disappearing overnight, and the state budget on the chopping block, we are facing an economic peril as great as any since the Great Depression. What are we to make of these frightening times? We asked some leading voices in the world of economics, political science, and public policy to help make sense of the tumult we find ourselves in. See all of them here. Below, secretary of administration and finance Stephen Crosby:

So here we go again. 

Billion dollar deficits; tax revenues falling short of projection; 9C cuts emanating from the governor's office.  A national recession (never mind an international liquidity crisis) begets a local budget crunch, forcing state policymakers -- whose constitution forbids deficit spending -- to scramble to make ends meet.  We've gotten better at dealing with these slowdowns: At the end of the Massachusetts Miracle, the Dukakis administration had to raise the income tax, float bonds to pay operating expenses, borrow from the federal government to pay unemployment compensation, almost totally forgo paying for pension liability, and cut state spending dramatically. After recovering from the high tech collapse in the late '80s, the dot-com bust in the late 's, and years of fluctuating economy in the George W. Bush years, Massachusetts is in much better shape. We have $2 billion in various rainy day accounts; our pension funding schedule is steadily approaching current; we've relegated "Taxachusetts" to the dust bin with cumulative tax cuts that have saved taxpayers something like $4 billion annually. Yet with all that, the Massachusetts budget is once again in crisis.

The challenge for policy makers -- and having been a policy maker, I know just what a challenge this is -- is to react strategically, rather than tactically.  Mid-year budget cuts in state agencies -- the dreaded so called 9C cuts -- is no way to run a railroad. 

Policymakers and administrators alike get consumed with scouring their budgets, wrestling with unhappy trade-offs, and debating with advocacy groups, rather than running their agencies and planning for the future. Virtually all state employees are distracted from doing their jobs, worrying whether they will lose their jobs or their budgets will be cut. The governor has used 9C cuts boldly, and he gets credit for decisiveness and political courage.  But if things get worse, utilizing one time fixes (property sales, debt refinancing, delayed pension fund payments, and rainy day funds) for mid-year course corrections like we face today is not a bad idea, if it is coupled with a long-term, in-depth strategy for the next year's budget.  Budget cuts for FY2010 can be planned for.  Strategies for making big changes can be developed and implemented.  Time can be taken to really consider the costs and benefits of programmatic changes.

So what are the big strategies that we could be considering for FY2010? State employee pension and health benefits are unsustainable, both economically and politically.  Now is the time to bring employee contributions to health benefits and defined benefit pension plans more in line with private sector norms.  In exchange for holding local aid harmless -- which the governor is heroically trying to do -- the state should empower a host of reforms for municipal governments which can bring their fiscal and operational status into at least the 20th century: participation in the state’s health and pension plan should be mandatory for municipalities that underperform them; municipal health and pension benefits (such as the option of retiring at age of 55 with as much as a 75 percent pension) must be revised; regional procurement and service delivery, perhaps organized by the regional planning agencies, must be made mandatory. 

With the time to do it properly, we should re-think our draconian "three strikes" policy and imprisonment for minor drug offenses -- since they fill our prisons with minor offenders, at great public cost.  Similarly, we should scrub our standards for the use of nursing homes, so we can encourage vastly cheaper community-based and assisted-care treatment, for seniors with the capacity to cope with less assistance. And we need to rethink new revenue streams, like casinos, local option meals and hotel taxes, and the gas tax.

All of these, and there are others, are big, politically-charged changes.  They can only be made in crisis, and they can only be made in a coordinated effort by the governor and the Legislature. And they can be made with extensive citizen participation. The combination of today's interactive technologies with the governor's considerable communication skills presents the opportunity for him and the legislative leadership to help citizens understand these issues and contribute to their resolution, in a methodical process to develop the "2010 Massachusetts Recovery Plan."

Stephen P. Crosby is the dean of the McCormack Graduate School of Policy Studies at the University of Massachusetts at Boston.  From 2000 to 2002, Crosby served as Secretary of Administration and Finance to Governors Paul Cellucci and Jane M. Swift.

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