Do the math

Thursday, April 3, 2003 - by Peter Golden

Walk the halls of the State House and the buzz is all doom and gloom. The main focus of the bad news is the growing unemployment and a busted stock market that have eroded tax revenues to the extent some pols are comparing today's situation with the Great Depression.

"Capital gains taxes, which previously generated a billion dollars a year, have gone to zero," says Bob Havern, an Arlington Democrat and Senate whip. "Factor in the loss credits and they're a negative factor," he adds as he pauses during a Citizens Legislative Seminar in his office on the first floor of the State House.

With over 72,000 high tech and other well-paid professionals laid-off since 2001, it's easy to account for the free fall in tax revenues, which are running at $40 million less a month than last year. Do the math on an annualized basis, add in the revenue losses for FY 2002 and 2001, and the harsh reality of a budget deficit headed toward upwards of $3 billion dollars becomes all too apparent.

But that's only the beginning of the bad news. Much of the state budget covers fixed costs, like debt service and pensions. Factor those out and you're left with an operating budget in the $13 billion dollar range. Cut two or three billion out of that number and you're slicing into the vulnerable flesh of special needs education, Medicare and services for the homeless.

Sure, there's a widespread perception that public service payrolls are bloated, that there's all sorts of fat and waste. If that's your take and you can back it up sufficiently to engineer a roll call vote in the Legislature, your city council or local town meeting, this is your lucky day; state law requires public budgets to be balanced.

One way or the other, cuts in entitlement programs are on the way—big time! Nowhere is this more apparent than in local aid. As recently as two months ago, officials were talking cuts to cities and towns in the range of 5- 10 percent. The new governor got together, briefly, with municipal officials to share the bad news, took some heat, and then the yelling died down.

Soon, the shouts of angry local officials will start anew. Revised estimates suggest local aid cuts will be more in the range of 15-20 percent. For small, rural communities where state aid often amounts to 50 percent or more of total municipal tax revenues, the impact of cuts will hit like a "bunker buster" on local services.

Bad buzz on Beacon Hill aside, the news in the commercial sector confirms the trend. "Sure, office vacancies in Greater Boston are running upwards of 20 percent," says Stephen Sousa, a senior vice president at the Warren Group, the publisher of Banker and Tradesman, the paper of record for the Massachusetts real estate industry. "My own, informal inquiries yield more bad news," he adds. "A friend who does residential additions and rehabs in MetroWest tells me his business has just about dried up." Sousa also notes erosion in the advertised prices of the million dollar homes that have become ubiquitous in many MetroWest communities, a fact confirmed by Sue McDonough, a MetroWest real estate broker with Carlson-GMAC.

War, terror threats and stock market declines have not ruined everything, however. "We're doing fine," says John Giunta, manager of the supermarket Stop & Shop's Natick location. "In a recession people tend to eat at home more," he adds. Surprisingly, the restaurant industry and retail trade are holding their own. Eat, drink and be merry!

But that was then—yesterday and a few days ago. Today global fault lines are crackling across the landscape of world trade as historical political alliances are impacted by the war in Iraq. Televised war coverage is like a trip to the dentist—there's only so much you can take. An already battered stock market is headed further south in response to the possibility of a drawn-out war.

While you and I try to sort out the chilling torrents of bad economic and political news raining down around us, some are working to turn the tide of recession. Legislative committees, chambers of commerce and industry groups are powering up initiatives at the regional, state and national level. Smart money knows that when the figures don't add up, it's time to do the math again, then make some changes.

Got a sharp pencil?

 
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