But economy strong, says Baker
Jordan Graham Thursday, June 02, 2016
Credit: Angela Rowlings
Debt-laden Massachusetts is “walking on the same road as Puerto Rico,” said the author of a George Mason University study on the fiscal condition of states that ranks the Bay State a dismal 49th for fiscal solvency — ahead of only Connecticut and the Caribbean territory.
“It’s the ongoing habit of issuing lots of debt and unfunded liabilities and having a poor cash position and taking on more spending than you can finance, and that, if it’s done over a significant period of time, does lead to a crisis,” said Eileen Norcross, a senior research fellow at GMU’s Mercatus Center. “Massachusetts’ economy is far stronger than Puerto Rico, their debt loads are nowhere near Puerto Rico, but it’s that habit they’ve got to look out for. If it’s an ongoing habit, you might be early on that road, but you’re walking on the same road as Puerto Rico.”
The report, released yesterday, described a smorgasbord of poor financial management by Beacon Hill pols and bureaucrats, including:
- Spending more than the state receives in taxes and fees.
- Insufficient cash reserves to withstand a recession.
- Large unfunded liabilities, including pensions and health care spending obligations.
- A habit of borrowing to fund new projects.
“This report is a wake-up call to elected officials in Massachusetts,” said former state Inspector General Greg Sullivan, now a government watchdog at the Pioneer Institute. “Looming beyond the horizon is billions of dollars of unfunded obligations. … We’ve got to confront these problems.”
The report is based on fiscal 2014, the most recent complete data available. Still, these are not issues that can be addressed with the flick of a switch, Norcross said, stressing the need to dramatically boost the rainy day fund.
The Baker administration yesterday said the rainy day fund has $1.25 billion, but said for the first time in years the state budget does not call for tapping emergency funds to cover routine spending, and plans to deposit more then $200 million in the fund.
Gov. Charlie Baker pushed back on the report, citing a new stable credit rating and Massachusetts’ strong economy.
Shortly after taking office, Baker told an audience of state bond buyers his goal is to get the commonwealth to a AAA rating. Late last year, Standard & Poors changed its outlook from “stable” to “negative.” Yesterday, Fitch rated Massachusetts bonds as AA+, with a stable outlook.
“Fitch actually came out and affirmed their rating today and said that among other things we have a diversified and very successful economy,” Baker said, referring to New York-based Fitch Ratings. “They also said we have a very strong working relationship with the Legislature. When we see problems, we articulate them and we solve them, and that’s going to continue to be the way we handle our fiscal situation here in Massachusetts.”