STATE DEFICIT EYED IN FY 2009

DECEMBER 18, 2007: Economists and state tax officials have cautioned legislative leaders and the Patrick Administration that the Commonwealth may be on the verge of a recession, with a budget shortfall almost certain for Fiscal Year 2009. However, while the state may undergo some fiscal belt tightening, state officials have made it clear that an early retirement incentive (ERI) is not being considered.

Figures collected after the 2002-2003 ERI indicate that the programs have added $1 billion to the Commonwealth’s unfunded pension liability. With most positions now having been backfilled, the state’s health insurance costs have also risen dramatically due to the ERI. Unless the economy worsens to the point where the state’s public workforce needs to be reduced, a new state or local ERI is unlikely.

State officials are hopeful that holiday buying and year-end lottery sales help to reduce the now anticipated $1.3 billion structural deficit in FY 2009, which begins on July 1, 2008. A structural deficit occurs when tax revenues do not meet the cost of maintaining existing budget commitments based on inflation. In past years, the state has relied on its rainy day fund, along with the ongoing tobacco settlement revenue, to help balance the budget.

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