A progressive’s view of the federal and MA state budgets

By Grace Ross

Doing the same thing and expecting a different result is that fabulous definition of crazy. Yet economically as a state and nationally as a country, we continue the same economic policies somehow expecting that the ones that got us into this economic crisis are going to get us out.

One of my pet peeves is elected officials who seem to think that their responsibility as our representatives is to balance the budget of the level of the government to which they were elected. In fact, every single one of us elected these folks expecting them to have an eye on their district’s economy as a whole and balance their level of government’s budget so as to improve our economic lives and realities not just their “isolated” bottom line.

We all knew that the federal government should not give money to the very banks that got us into this mess. Instead, Congress lent not just hundreds of billions publicly but the Federal Reserve Bank lent them tens of trillions guaranteed by us taxpayers. Yet, we knew the big banks still would not rewrite all the bad mortgages or lend so our small businesses survive.

Obviously, our elected leaders need a complete rethink of the purpose and focus of government budgets: what makes our economy thrive and what doesn’t, not satisfying the economic desires of a few.

It’s staggering to hear our present governor, Deval Patrick, express such outrage that Fidelity now plans to take 1,000 jobs out of state. Surprised? We’ve just been through the whole debacle of the $56 Million Evergreen Solar infrastructure and tax sweetheart deal. They are a local grown business that could have played a central role in rebuilding manufacturing in one of the few growing sectors: green energy. But like most corporate money deals, Evergreen was not actually bound to anything for our state residents; that same money could have subsidized regular people being able to afford solar panels and thus create a burgeoning market to incentivize Evergreen to manufacture and create jobs here! (Of course, the Governor himself is planning to cut more jobs.)

In the 1990s, our legislature passed whole sector tax cuts: the military industrial sector break (known as the “Raytheon tax” break) and the financial sector break known as, you guessed it, the “Fidelity tax” break. These tax breaks were sold as keeping (maybe creating) jobs in Massachusetts. History, however, shows that these jobs have dwindled in our state since those tax breaks. Studies also show that companies don’t move somewhere primarily for tax incentives. As a novice to elected government, perhaps Governor Patrick just hasn’t tracked public policy long enough to predict what our state experience and research shows: tax breaks for big corporations do not make them keep jobs here nor certainly develop new jobs.

We all know the decades old reality: most jobs are created by our local businesses. When they make money, they spend most of it locally and commit more resources to area nonprofits than big corporations. In this huge economic downturn, local businesses are proven to stay in business more than big corporations that shutter their factories and outlets; small business owners are committed enough to plow their profits back into the business. In comparison, imagine a major CEO saying “oh shareholders, we need you to reinvest that money we gave you a couple of years ago back into the business”? Small businesses retain jobs longer in a downturn; they’re the first ones to create new jobs when there is an upturn. Policies need to start focusing on our locally owned businesses with a long-term commitment to Massachusetts.

So what did the Governor propose? He proposed implementing an across the board corporate tax cut (originally estimate: $76.5 Million per year). If we’ve learned anything, it is that the higher the taxes a large corporation or wealthy individual pays, the bigger part of the tax cut they get. The governor’s corporate tax cuts means big corporations will get even more of an advantage over our small businesses. The rest of us, our small businesses or us regular people, we don’t get much money back out of an across the board tax cut but we do lose the positive benefits of government revenues: jobs and services that really fuel our local economy for our local businesses and our lives as regular people. Like the special sector tax breaks benefiting Fidelity or the sweetheart deals like Evergreen’s, the Governor still hasn’t applied the obvious lesson: the tax cuts that benefit the very largest corporations do not help our economy.

Worse than that is the $100s of millions worth of sweetheart deals from the Governor’s Economic Assistance Coordinating Council (EACC); the EACC has long coupled limited state tax breaks to tiffs by local communities that want to expand a business opportunity locally. Under Patrick’s leadership, not only has the EACC approved the largest number of corporate deals – 97% of the deals proposed – but also their guidelines got changed to allow much bigger tax breaks and other infrastructure deals; one change allows up to one type of 40% tax break. Liberty Mutual got a combination worth $44 million and yes, Patrick’s old employer Coca Cola got a break.

Then a reporter last summer spotlighted the rubber stamp giveaways by the EACC. They responded by narrowing their give-aways to only out of state companies or Massachusetts companies with defined plans “to leave the state”. So now our public monies can only go to those corporations that take their profits out of state or to companies that are not committed to staying in our state? But small businesses who are willing to throw all that they have into succeeding in our state economy and creating jobs are now apparently the very ones the Governor’s EACC excludes from economic support?
In fact, the Governor made big fan fare of supporting small businesses with a special $50 Million set aside for the small businesses – less than even the one Evergreen deal?

What would turn our economy around and create jobs? Thriving small businesses and local economies. Contrary to our corporate-centered government messages, by far the biggest part of our economy is the spending of regular people: 70%. And one measure of which people spend the most is who pays the highest percentage of their income towards sales taxes. Those who spend every dollar to survive pay sales taxes on almost all of those dollars; people who spend a very small amount of their overall income on daily expenses and don’t spend locally, pay very little in sales taxes and so do comparatively little to contribute to reviving our local economies.

So our state government increasing sales taxes last year was the most economically counterproductive choice; it continued to increase the tax burden on regular people who spend all of their money just to get by day to day. On the other hand, taxing surplus wealth does not drive our local economy so they should reversed previous tax shifts back to those who spend the least but saved the most through recent state tax breaks. All state tax breaks from the 1990s through 2002 benefited only the top 20% of households and half of that benefit went to only the top 1%. We have to rebalance our tax base back onto everybody’s shoulders not just those of us who work for a living.

I join with others proposing to cut taxes some for the majority of Massachusetts residents – all of us who paid the lion share of the sales tax increase since last year. Those who got the tax windfalls since 1990 will need to pay closer to the percentage they used to. This proposal to reinvest in our communities would raise about 1.2 billion. And the majority of us paying less taxes will spend that money helping our local businesses get the sales they need to grow.

The most striking thing about the Governor’s budget, however: While we’ve gotten a couple of key legal improvements passed, nothing to address the foreclosure crisis and its impact!

The foreclosure crisis not only precipitated this incredible economic downturn but it is still growing and increasingly undermining our state economy. A 2007 study by the Congressional Joint Economic Committee I kept quoting projected a loss of about $2 billion per month to our overall state economy: impact on foreclosed households and neighboring households, neighborhoods, municipal costs, loss in property values and therefore property tax base; perhaps most critically it cut the spending power of households that lose value in their homes and that hurts local businesses and jobs!

Soon, we will have a new study on the economic impacts of the Massachusetts foreclosure crisis but here’s some estimates. All studies from three or four years ago have been shown to have been much too conservative in their estimated economic losses. Likewise, these new projections may seem wildly too large; believe me they are not.

Property value loss is as much as 1/3 of value in Worcester County, the hardest hit county in the state. Loss in household wealth and spending power in Massachusetts from 2007 to 2009 was closer to $100 than the $59 billion estimate. Municipal costs per foreclosure – loss of revenue, costs of boarding up, maintenance, increased police, fire, and health code enforcement – range from about $5,400 to as much as $34,000 per foreclosure; and those are likely low-balled figures from years before the crisis escalated. In Worcester alone, these low-balled figures for identified foreclosed vacant properties (many more not yet identified) cost us perhaps $8.9 Million last year.

While state powers are limited, the state budget should include: mandatory mediation shown to stop up to 70% of foreclosures; judicial foreclosure where getting a judge to review a foreclosure before it happens has saved states that have it tens of millions of dollars; requiring the lenders to let former home-owners who are willing to be responsible tenants stay and pay rent until properties are re-sold. This would provide more in local aid by saving money for municipal governments than any other local aid the state budget can afford.

Governor’s budget response to banks taking tens of thousands of housing units off the market? Cut homeless services by about $20 Million – exactly the annual cost of EACC-sponsored corporate tax breaks for building renovations.

The highest expenses hamstringing our state budget are similarly hurting our overall economy (households, local businesses and municipalities): spiraling healthcare and energy costs. Our stated healthcare goal is to cover everyone in Massachusetts affordably. However, the Governor is proposing the same types of failed healthcare “savings”: policies that don’t lead to covering everyone nor stop the increasing unaffordability of care.

The Governor projected an annual increase of 60,000 people on Mass Health, a 4.6% increase on top of the ever-increasing overall cost of healthcare (rising much faster than the inflation). Some of the Governor’s proposals simply transfer what the government can’t afford on to individuals; this isn’t savings, this is adding to the spiraling costs individuals and businesses also can’t afford. He proposes increased co-pays and coinsurance. He also proposes cutting basic services needed to improve overall health: public health and $16.4 million in mental health services.

Another recent study repeated previous results: when you increase the cost to basic maintenance healthcare expenses such as increasing co-pays for just doctor’s checkups or basic medication always backfire and increase costs. Short on money, people don’t access care when it’s cheap and preventative or maintain care instead they wait until a condition is worse and more expensive to treat. Patrick’s proposals will increase state costs. One good move: he emphasizes a policy we championed before he was governor: fund basic services and community supports so people can avoid exorbitant nursing homes.

Amazingly, the Governor thinks that he can save $310 Million by doing the equivalent of managed care (only $150 Million in state savings because half is a federal match). Managed care did not limit long term costs because it’s like putting up a dam to stop an ever increasing river from barreling forward. For a while, the dam may hold the water off but eventually it is either going to come over the top or break through. We actually have to address the underlying causes of spiraling healthcare costs.
Remember the recent outrage that Blue Cross Blue Shield (by far the largest Massachusetts healthcare plan) dismissed their CEO as inadequate but gave him an $11 Million parachute? Now, Massachusetts health plans are nonprofit (although some businesses insure through for-profits out of state). However, four supposedly nonprofit healthcare plans pay their board members.

The Governor is stressing a $16.4 Million mental health cut, that’s only 1 and ? times the golden parachute of the ex-BCBS CEO! Our outrageous, increasing healthcare costs are overhead costs that don’t provide healthcare.

In his first run, the Governor promised a new policy of bulk purchasing all Massachusetts medical prescriptions. Now by law, state programs were already supposed to bulk purchase drugs. However, once elected, the Governor refused to implement even that. During last year’s gubernatorial campaign, I actually got “spoken to” by somebody in Patrick’s administration: they’d already saved money by moving to generics so why should they be expected to save even more money by bulk purchasing drugs? A couple of years ago we actually brought a plan to the State showing how to significantly reduce costs by combining purchasing power and using their existing cheapest purchasing options. So, instead of transferring the unaffordable drugs costs onto individuals, the Governor should implement this legally required (promised) policy and eliminate the increase in co-pays.

Another huge savings is “uniform billing” that we fought for and Senate leaders passed but Patrick has not implemented. Instead of tons of paper pushing and healthcare staff calls to numerous insurance plans about what’s covered, how it’s paid and when it’s not being paid, “uniform billing” cuts those expenses. All insurance companies and providers have to use one set of familiar billing codes from Medicare regardless of how insurance plans pay for care. Estimates put healthcare savings at maybe 10% and billing will work more efficiently.

However, both the bulk purchasing of drugs and the uniform billing means less profits for drug companies and insurance companies. Whose money are government policies protecting? Because there is another even cheaper option not just for the state government, but all of us. My budget proposal? An universal coverage, universal choice of medical provider system; much less costly because it cuts out all the big money-making corporations. It’s referred to as Medicare for all or a state single-payer system. The savings to our state economy will be some $9.7 Billion annually (about 15.75%); 80% of families would save about 7% of their income; employers currently providing their workers insurance would save .3% of payroll costs; small employers would save 2.8% of payroll costs.

Savings for households, small businesses and our municipal governments will mean the spending and job creation needed to turn our economy around. Savings to state government would be $472 Million comparable to “savings” Governor’s claimed for his proposed cuts. However, not only would single-payer mean we have everybody covered affordably, saving money long term for every segment of our society, it will also provide better health outcomes.

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