STATE FISCAL SHORTFALL REVISED

More Budget Cuts Expected

JANUARY 2, 2008: With Governor Deval Patrick now revising his fiscal shortfall in the current budget (FY09 budget) by an additional $1 billion over his October estimate of $1.4 billion, cities and towns are preparing for cuts in their budgets.

Earlier cuts were made at the state level. These cuts included over 1,000 layoffs and a reduction in the budgets of most state agencies, including the State Group Insurance Commission (GIC), which was cut by $34 million. How this will impact state and local retirees insured by the GIC has yet to be resolved.

Because cities and towns as well as the state are now in the second half of their FY09 budget, it is quite likely that local governments will now feel the same pain as the state in the coming six months.

The pain for both state and local governments will also be felt in the FY10 state budget, which takes effect next July. This next budget, which will be released by the Governor to the Legislature later this month, could level fund or even reduce the $5.3 billion in local aid that was included in the FY09 budget. Municipalities rely on an annual inflationary increase of two to three percent each fiscal year. This will definitely not be forthcoming.

Pension Costs Impact

With state and local pension funds losing an average of 30% of their value due to the market meltdown in 2008, this will require an adjustment in their pension funding schedules, under which all unfunded pension liabilities must be fully funded by 2028.

Other than increasing annual appropriations in current schedules to make up for the unprecedented 2008 loss, or a huge market run-up, the most logical solution will be to allow funding schedules to extend beyond 2028.

Both our Association and the Mass. Association of Contributory Retirement Systems (MACRS) are in the process of filing legislation that will allow the necessary extension. We feel this is the most reasonable solution to save money in current and future budgets while also assuring annual pension COLA payments and an improved COLA base when the market improves and budgets become fully stabilized.

Meanwhile, we will be watching any activity by the Legislature relative to an increased source of revenue for both the state and local budgets, including the potential release of President-elect Barack Obama’s stimulus package, prior to Governor Patrick’s FY10 budget.

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