Patrick cites $540M budget gap, orders cuts

BOSTON (AP) — Gov. Deval Patrick on Tuesday ordered spending cuts across state government to close a projected $540 million budget hole that he pegged largely on economic uncertainty caused by the looming "fiscal cliff."

Patrick called the actions a "sensible and prudent" approach to a revenue shortfall that had been developing since the start of the fiscal year in July. He said he would not be seeking any increase in state taxes to address the gap.

The governor said he would use his authority under state law to cut executive branch spending by $225 million, equivalent to about 1 percent of the budget for those agencies.

He also said he would ask the Legislature to approve a similar 1 percent reduction in the budgets of the Massachusetts court system and other state constitutional offices and a $9 million cut in unrestricted local aid to cities and towns.

The governor proposed the cuts even as the state reported a slight uptick in tax collections in November. Officials, however, concluded that it was not enough to offset the overall lower-than-expected collections through the first five months of the fiscal year, and the result was a decision to revise downward by $540 million the full year revenue projection.

Discussions with business leaders and economists convinced Patrick that the shortfall stemmed from the ongoing budget deadlock in Washington.

"By all accounts, that uncertainty and the resulting slowdown in economic growth is the direct cause of our budget challenges," Patrick said. "Economists agree that the fiscal cliff is keeping a tremendous amount of private capital on the sideline. Business leaders I meet with confirm that fact."

Associated Industries of Massachusetts, a group representing private employers, also cited fiscal cliff worries as the catalyst for a drop in its business confidence index in November. The index slipped into negative territory for the first time since June, meaning employers were more pessimistic than optimistic about economic conditions.

The state's economic slowdown has been blamed on other more tangible factors in recent months.

MassBenchmarks, a journal published by the Donahue Institute of the University of Massachusetts, said in an October report that a sharp slowdown in the state's economy in the third quarter could be attributed to a drop in exports — tied to economic difficulties in Europe — and stagnant growth in the global information technology market.

Sen. Bruce Tarr, the Republican leader in the state Senate, said Patrick's "inaction" on the GOP's past budget and job creation initiatives were partly to blame for the current predicament.

"Governor Patrick is confronting the harsh reality of a faltering economic recovery and budgetary paralysis in Washington to meet the requirements of a balanced budget," the Gloucester lawmaker said. "Yet it's also a harsh reality that this situation could and should have been addressed by more aggressive action to create a better climate for economic growth."

The governor warned that if President Barack Obama and Congress fail to reach a budget deal by Dec. 31, triggering tax increases and federal budget cuts, it would likely result in a further downward revision of $300 million in revenue projections for the fiscal year.

In addition to the spending cuts ordered Tuesday, the governor said he would also ask the Legislature to transfer $200 million from the state's reserve fund, better known as the "rainy day fund." He also noted that more than 700 new positions in state government that had been included in the current budget will go unfilled.

The Legislature has ended formal sessions for the year, making it unlikely that lawmakers would act on the proposed spending cuts before the next two-year session in January.

Geoffrey Beckwith, executive director of the Massachusetts Municipal Association, said he will urge lawmakers to reject the proposed cut in unrestricted local aid, arguing it could have severe consequences for cities and towns that have already absorbed a 32 percent cut in state assistance since 2009.

"Every community will be impacted," Beckwith said. "The 1 percent sounds small, but it will destabilize current budgets that are in place and communities will have to take action."

Patrick noted that the spending cuts are but a small fraction of the state's more than $32 billion budget and that while the gap was serious, there was no reason for panic. But he acknowledged that the reductions would hurt.

"Many of the people who feel these budget cuts are among the most vulnerable people in the Commonwealth. They are people who depend on social services," he said.

The cuts include $11 million for special education, though Secretary of Administration and Finance Jay Gonzalez noted that spending on special education would still be $17 million higher than last year.

Cox Media Group