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‘Sobering’ estimates mean budgeting with billions less

  • State Rep. Aaron Michlewitz, state Sen. Michael Rodrigues, and Administration and Finance Secretary Michael Heffernan sanitized their hands while passing around a microphone during Tuesday's economic roundtable.  STATE HOUSE NEWS SERVICE/SAM DORAN

State House News Service
Published: 4/14/2020 5:26:50 PM

BOSTON – Amid universally dire estimates of the toll the coronavirus pandemic is taking, economists and legislators agreed Tuesday that the state's financial prognosis is still largely unknowable at this point in the crisis and that public health considerations, not economic forces, will determine how the next few months will unfold.

Top state finance officials convened a virtual hearing with economists and budget analysts on Tuesday morning as they seek to chart a path forward and craft an annual budget for Massachusetts that takes into account the massive economic disruption caused by COVID-19.

The hearing was delayed a week due to a technology failure but went off with just a few hiccups over the course of several hours as experts predicted unemployment in Massachusetts could rise to nearly 18 percent and tax collections could fall $4 billion to $6 billion below initial estimates for fiscal 2021.

One economist called his and other forecasts "guesswork," while another fiscal analyst said that in just the week-long delay her numbers and estimates had "changed drastically." As they offered answers to burning questions, experts also raised questions. Will Congress approve more aid for states? Will the rebound be sharp or gradual? Will there be a resurgence of the virus in the fall, forcing another round of quarantining measures?

The evolving and unprecedented nature of the virus and the global economic downturn it has caused has made the challenging task of budgeting in a recession even more difficult as legislators try to craft a plan to prop up state government for the next three months, and develop a budget for the fiscal year that begins July 1.

“Our top goal each and every year is producing a fiscally responsible budget that prioritizes our commonwealth's most vulnerable groups and people,” said Senate Ways and Means Chairman Michael Rodrigues. “Meeting that goal will take even more concerted effort than ever as we face tax revenue uncertainties paired with expanding spending needs in areas like hospitals, emergency food assistance, small business aid, and unemployment supports."

Rodrigues, House Ways and Means Chairman Aaron Michlewitz and Administration and Finance Secretary Michael Heffernan – all three seated together at a long table in a State House conference room – opened the hearing by warning that much about the trajectory of the virus, and therefore the economy remains unknown.

Michlewitz reiterated that the normal budget timeline that would have the House debating a spending plan for the next fiscal year later this month is “no longer feasible,” but when they might be ready is another question.

“As difficult as it is to witness this level of economic suffering, the health and well-being of our citizens must take precedence. The public health component of this crisis must be fully dealt with before we can truly worry about the economic realities that lay ahead of us,” Michlewitz said. “Any notion that we need to open up the economy before we get a handle on COVID-19 would be irresponsible and somewhat foolish.”

The Boston Democrat said the influx of calls from constituents seeking unemployment, housing and small business relief has been “staggering,” and he called the economic crisis “unprecedented” because it was brought on intentionally to slow the spread of the coronavirus.

“How we wake up from that coma is anybody's guess,” Michlewitz said.

Heffernan, the top budget official for the Baker administration, noted that through March tax revenues were coming into state coffers as expected, but that is not expected to continue in April.

“We do not know what April and the future will hold for us,” Heffernan said.

The secretary said he drew hope from the fact that the state's economy was strong and growing before the virus forced a widespread economic shutdown.

“We're hoping this underlines a strong recovery, but that recovery remains uncertain,” he said.

Michlewitz asked many of the presenters whether they thought the economic rebound would look more like a “U,” meaning gradual, or a “V,” meaning a faster, stronger recovery, and when they might know that answer.

“As we try to craft our FY21 budget, we'd want to have some understanding of that,” Michlewitz said.

Massachusetts Taxpayers Foundation analyst Andy Bagley said it could be another month before economists know the answer to that question, and Beacon Hill Institute President David Tuerck said it would likely be July before anyone understands what the recovery will look like in Massachusetts.

“I can't see it clarifying itself much sooner than that,” Tuerck said.

A fall resurgence of the virus, the experts said, could also turn the recovery shape into a “W,” which would upend all of their new estimates for revenue and employment.

State Rep. William "Smitty" Pignatelli, a House chairman, wrote a letter to House Speaker Robert DeLeo last week suggesting the Legislature enact month-to-month budgets through the end of the calendar year, and reconvene in a special session after the November elections to debate and pass a budget for the remainder of fiscal 2021, after substantially pre-negotiating the bill with the Senate.

Pignatelli said that an adjusted timeline like the one he recommended would address the fact that technology, while helpful, might not be suitable to enabling House lawmakers to remotely debate a state budget.

Massachusetts Taxpayers Foundation President Eileen McAnneny said unemployment in the second quarter of 2020 could push toward 18 percent, with 570,000 jobs lost and a $4.4 billion, or 14.1%, decline in projected revenue for the next fiscal year.

McAnneny said Massachusetts could recover 410,000 jobs within a year, but employment won't reach pre-virus levels until 2022.

Despite the forecasts, or perhaps because of them, Massachusetts Budget and Policy Center President Marie-Frances Rivera told lawmakers and the administration it was “not the time to switch to austerity mode.” She urged them to close tax loopholes, use the state's $3.5 billion “rainy day” fund and tap federal aid to preserve spending on critical human services.

Gov. Charlie Baker has dismissed the idea of turning to new or higher taxes to address the revenue problem the pandemic is creating, but Michlewitz said after Tuesday's hearing that it was too early to take anything off the table.

“I hate to say it, but I think everything has to be on the table in this conversation to get through it, but those are worse case scenarios. We're not going to run to those immediately,” he said.

Addressing a question raised by Northeastern University economist Alan Clayton-Matthews about taxing stimulus checks, Rodrigues said, “We are not considering any new tax policy.”

UMass Dartmouth public policy professor Michael Goodman said the COVID-19 pandemic is likely to trigger the largest global economic contraction since the Great Depression but said the duration of the downtown is going to be “a function of more (epidemiological) conditions than economic conditions.”

Goodman said state government had done well to build its reserves to almost $3.5 billion, but said he didn't think that would be a “sufficient fiscal buffer for what lies ahead,” and all the economist on the teleconference agreed states like Massachusetts will need federal assistance to navigate this recession.

After the hearing, Rodrigues called the expert opinions “sobering, but not surprising,” and Michlewitz described the hearing as the “first step in the process” of figuring how and when the Legislature will be able to produce and pass a budget for fiscal 2021.

“How that process plays out is still to be determined,” Michlewitz said, predicting “uncomfortable decisions” ahead.




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