State Budgets

State of the Commonwealth: Massachusetts

If tax and regulatory reform are pursued by the administration and legislature, economic outlook may brighten yet more.

In his second State of the Commonwealth address, Massachusetts Governor Charlie Baker celebrated that “over the past two years we’ve added over 120,000 jobs,” a reduction in the welfare caseload of 25 percent and a reduction in bureaucracy the governor credits with saving “hundreds of millions of dollars.” Noting the state’s habit of using its rainy day fund to manage budget deficits, Governor Baker proposed investing into this fund each year. Re-investing into the state’s rainy day fund, which is $1 billion less than it was in 2007, will provide stability to the state in case of any future economic instability, as it was used through the last recession.

The newly released economic outlook rankings in the American Legislative Exchange Council 10th annual Rich States, Poor States publication reflects the improvement. Economic performance in the Bay State jumped from 30th to 18th in the recently released index as economic outlook improved to 25th in 2017—the best outlook ranking since 2011. Massachusetts outlook is higher than five of its six neighbors; not surprisingly, the top marginal personal and corporate income tax rates are lower than five of the six neighboring states as well. To further improve economic competitiveness both regionally and nationally, broad-based tax reform is desirable. But Governor Baker’s strong opposition to any such “broad-based tax increase” is a positive, nonetheless.

The largest spending priority identified by Governor Baker was $130 million for K-12 education, an increase of more than $90 million. Given Massachusetts has increased education spending by more than $2,000 per-pupil from 2013 to 2015 and still saw a decline in average NAEP scores by 1.5 points, simply increasing funding is not the help students in Massachusetts need. The governor might consider addressing the burdensome regulations on homeschooling, the lack of private school choice programs and relatively restrictive charter school regulations for more cost effective means of raising education outcomes in Massachusetts.

The governor mentioned the benefits derived by cutting the Massachusetts Bay Transit Authority’s (MBTA) operating deficit in half. Those savings were reallocated within MBTA for transportation infrastructure projects. Funding upgrades for the commonwealth’s infrastructure by reducing operating spending instead of raising new revenue is commendable. Furthermore, working with companies such as Uber and Lyft has enabled 400 people to use far more cost-efficient ridesharing instead of MBTA’s costly RIDE program (sometimes more than $50 per trip).

An item of concern is the governor’s Executive Order on Climate Change which may unduly hamper economic growth in an effort to “reduce greenhouse gas emissions.” Rather than revisit the draconian limit of an 80 percent reduction in carbon emissions by 2050 compared to 1990, the executive order calls on the Commonwealth to make “new, additional reductions in greenhouse gas emissions from Government operations” along with pursuing the establishment of interim statewide greenhouse gas emissions limits for 2030 and 2040. Such restrictions by one state in which fewer than 1 out of every 1,000 people globally live may make legislators feel good about themselves will have virtually no impact on global climate; however, the economic impact on the state itself will be felt as regulatory hurdles block some businesses from thriving.

Another concern is Governor Baker’s continued support for closing the “tax loophole on Airbnb.” This legislation, although not finalized, will potentially limit the number of days Airbnb hosts can rent to guests, levy new taxes on hosts and subject properties to onerous regulations. Regulations in alignment with ALEC model policy relating to “online lodging marketplaces” for short term rentals would avoid these pitfalls.

Overall, however, the state’s steps towards economic competitiveness are yielding results. Governor Baker rightfully recognized this achievement, “We built a bipartisan team, worked in partnership with the legislature and looked for common ground.” Shrinking the state’s budget gap by over $1 billion without tax or fee increases is just one example. If tax and regulatory reform are pursued by the administration and legislature, economic outlook may brighten yet more.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

+ State Budgets In Depth