Baker previews fiscal strategy ahead of new budget plan

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BOSTON – Gov. Charlie Baker, who plans “a lot of level funding” in his second annual budget, said that by fiscal 2018 he will have weaned state government off the use of one-time revenue sources to balance spending.

“We need to do all we can to make sure we do live within our means because at some point, I don’t know when that will be, we’ll all have to tighten our belts a little bit to deal with a turndown in the economy and we better be prepared for that and not be sitting there with five, six, seven, eight hundred million dollars in one-time revenue sources that aren’t going to be there,” Baker told reporters on Tuesday after speaking at a luncheon for the Association of Developmental Disabilities Providers.

Baker said the budget he intends to file on Wednesday for fiscal 2017, which begins July 1, would include only $150 million to $200 million in one-time revenue sources, about a third of what was used to balance the current $38.4 billion budget.

“Hopefully by the time we get into fiscal ’18 we’ll be, sort of, recurring revenue-recurring expenses even,” Baker said.

According to the Massachusetts Taxpayers Foundation, the fiscal 2016 state budget relied on $629 million in one-time solutions to close a structural budget gap, including $300 million by diverting capital gains taxes earmarked for reserves to the general fund, $100 million from a corporate tax amnesty program and $116 million in deferred MassHealth expenses.

For the first time in years, Baker’s budget filing last March did not draw from the “rainy day” fund to balance spending and reduced the reliance on one-time revenues sources by about half.

The Massachusetts Taxpayers Foundation estimates another structural budget gap in fiscal 2017 of between $700 million and $900 million.

Baker said that means agencies and programs can expect “a lot of level funding around budget.”

“I think you’re going to see that we’re going to do a bunch of things with respect to operational reforms and other kinds of initiatives like that, but again, in a $40 billion budget we should be able to figure a way to close a deficit of that size,” Baker said.

In the days following his State of the Commonwealth address and leading up to the budget release, Baker has teased initiatives to be included in the spending plan, including a reform to the film tax credit, increased investments in local aid and vocational schools and a reform to the method the state uses to reimburse districts for students who attend charter schools.

Baker said, however, that in addition to new investments the state needs to work to keep spending growth in line with the rate of growth in the economy, and can no longer afford to see its budget growing at 8 percent a year, or three to four times the rate of inflation.

“You can raise taxes every year and not figure out how to pay for that,” Baker said.

Despite tax revenues projected to grow by 4.3 percent in fiscal 2017, House Ways and Means Chairman Rep. Brian Dempsey recently told the New Service that more than half of that could be consumed by fixed costs on pensions, MassHealth and other programs.

“It becomes challenging and it becomes a puzzle,” Dempsey said.

While he said he was “optimistic” that lawmakers would continue to have enough money to make investments in key priorities, Dempsey said he was looking forward to seeing how Baker prioritized his spending.

“I think the expectation level is really what folks ought to keep in mind. We’d always like to do more. The challenge for us is to show growth over a number of years, not just one particular budget,” Dempsey said.

Written by Matt Murphy