1/10/11

Will Chafee-General Assembly Tackle Budget Deficit?

Now comes the hard part. We have a new independent governor in office, a not-so-new Democratic-controlled legislature, and a nearly $300 million dollar structural budget deficit looming for the year ahead, with even higher budget deficits lining up for subsequent years. Beyond all other business facing state government, the budget deficit will end up controlling the agenda. It has to. As Governor Chafee said in his inaugural address, “The time of irresponsibility is over.”

Now is the time of reckoning for lost years when state spending outstripped revenues, and legislators passed the buck by grabbing at tobacco settlement revenues and, during the past two years, federal stimulus monies to balance the state’s books, as required by law. The gush of federal funds is all but over, so this year’s legislature is finally going to have to face the budget deficit down. How they will do that is anyone’s guess.

Governor Chafee was the only candidate to put forth a deficit reduction idea: imposing a 1-percent sales tax extension on food, clothing and other items. All told, expectations are that this would net the state almost $90 million a year in additional revenue. The idea remains deeply unpopular for obvious reasons: it’s a new and highly regressive tax imposed on a citizenry already burdened by high taxes. It will hardly help the state’s image and competitiveness. And imposing new or higher taxes is every politician’s nightmare.

By itself, it doesn’t come near to closing the gap. So what else can be cut? Legislators have already shifted a big portion of the tax burden to our cities and towns by taking away education funds and car tax revenues. Pensions and state retiree healthcare obligations are contractual matters that the unions won’t give up on without a major fight. Even if Chafee and the General Assembly locked arms in agreement on radically transforming the pension/healthcare systems with bold action, overcoming union opposition in the process (fat chance of that happening), it would cost more to do so in the short term than by leaving them as they are. Tinkering with them further, which the public employee unions will also fight strenuously, is not going to reduce government costs by much in the short term. Those costs are going to grow in the future.

As things stand, state government is poised to spend even more on its employees at a time when it can hardly afford its present personnel expenses and obligations. The beast that is state government continues to require more feeding. Thousands of state workers just received a 3-percent raise and they’ll get another 3-percent follow-on raise come June, as part of a deal worked out by Governor Carcieri and the unions. The top five elected officials, including Chafee, a multi-millionaire, are getting an almost 10-percent pay raise on January 11th. And not to be left behind, the General Assembly is going to be spending more on itself come July, almost 7 million more - a 20-percent increase over the next three years on “salary/wages and benefits.”

Next year we can expect Massachusetts to quit arguing over the number of casinos and racinos it will permit and take the plunge into the gambling revenue bonanza. That will make Rhode Island’s revenue situation even worse in the next few years – permanently worse. How will our politicians recoup those lost funds?

Our situation is mirrored by a number of other states with equal – or worse – budget deficit situations. State governments will be strained to the hilt over the next couple of years, and a Congress hell bent on cutting federal spending (another major priority) is not going to ride to the rescue.

Governor Chafee is all for “cooperation and dialogue” with the legislature, and that may stand a better chance for getting something done than the opposing position taken by his predecessor. After all, it’s the legislature that calls the shots on the budget: the governor only recommends. We shall see. I suspect that Chafee’s honeymoon with the Fox/Mattiello -Paiva-Weed/Ruggerio Democrats will be short-lived.

It will be mighty interesting watching how Chafee and the legislature deal with the budget deficit with no hope of federal largesse or leftover tobacco settlement money to bail them out. Perhaps they have a backroom plan in mind, the details of which they’ll roll out in the weeks and months ahead. More likely they don’t. So how will they come up with $300 million?

1 comment:

  1. Well, that's the $300 million question right there.

    I agree, John: I think there will be friction to come. It's inevitable. Everyone knows where Chafee stands on the revenue side of things. But it's the hard decisions he must make on the spending side that will provoke confrontation.

    To be honest, I voted for the governor. I'm not wild about his regressive sales tax, but as you pointed out, Chafee was the only candidate with a plausible plan for reducing the deficit.

    If Chafee keeps his campaign promise and addresses the spending side, too, he'll have to shift to the right. I think he will. Oftentimes candidates campaign differently from how they govern, especially on contentious issues. How Pres. Obama changed his tune on Afghanistan is clearly testament to that.

    Let's hope Chafee has the stomach to keep his promises. And, in my opinion, he should start by making a stink about the raises you noted. Eliminating them may be out of his control, but such a move would at least signal to the voters that he is serious about reducing spending.

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