BOSTON — Already facing the “strong likelihood” of midyear budget cuts due to slow economic growth, Gov. Deval Patrick’s budget chief has told the state’s municipal leaders that a failure by Congress to avert the so-called “fiscal cliff” in the coming weeks would cost the state up to $300 million this fiscal year and $1 billion over the next full fiscal year.
Secretary of Administration and Finance Jay Gonzalez provided the projection to town and city officials Wednesday at a meeting of the Local Government Advisory Commission, advising them that hundreds of millions of dollars in grants that flow through the state to municipalities could be at risk, as well as almost $1.5 billion in defense and health spending.
“The consequences of this are pretty dire. I think we’ve seen some positive statements coming out of Washington about a commitment to try to address this in a responsible way before January,” Gonzalez said.
Following a dismal month for tax collections in October that saw the state fall to $256 million below revenue projections for the year, Gonzalez said no final decisions have been made but reported a “strong likelihood” that the administration would revise downward its revenue projections and announce mid-year budget cuts soon.
“I’m sorry to not have better news,” Gonzalez said. While the economic growth rate of 1.9 percent in the third quarter was slower than anticipated due, in part, to uncertainty over federal deficit negotiations and economic turmoil in Europe, Gonzalez said the failure to address the fiscal cliff could have a further chilling effect on growth.
Come January a number of federal tax breaks are due to expire and $1.2 trillion in budget cuts spread over nine years will go into effect unless the lame-duck Congress can find common ground on an alternative approach to deficit reduction.
Gonzalez said economic forecasters have estimated that the economy across the country, including in Massachusetts, could slow by another 1 percent to 1.5 percent if sequestration cuts are allowed to go into effect. The Department of Revenue estimates tax collections in Massachusetts would decline up to $300 million over the second half of fiscal 2013 and the first quarter of fiscal 2014, and could total $1 billion in reduced revenue over the next full calendar year, according to Gonzalez.
Cuts to defense and health spending, both cornerstones of the state’s economy, would also siphon money out of the economy. The Patrick administration estimates federal spending in the defense sector could be reduced by $1.2 billion annually, while National Institutes of Health funding to the state would fall by $188 million a year.
Formula and discretionary grants that flow through the state to municipalities could also be slashed by $200 million, impacting special education, Title 1 grants, low-income home energy assistance, child care and small city and neighborhood stabilization block grants.
Gardner Mayor Mike Hawke said cities would bear the brunt of going over the “fiscal cliff,” projecting that unemployment in his city would “tumble back” to 11 percent or 12 percent from its current level of 8.7 percent, well above the state average. “This is obvious that as a Massachusetts Republican none of this is my fault,” Hawke said.
Lt. Gov. Timothy Murray, who chaired the meeting, said the Patrick administration has initiated conversations with the White House and Congressional delegations about the importance of reaching a bipartisan compromise, and said some “belt tightening” would be needed, but there’s a more responsible way to do it.
“It’s all muscle and bone we’re talking about here,” Murray said.