A tight budget in '89, too

Like Old Mother Hubbard of nursery rhyme fame, Lt. Gov. Evelyn Murphy may find an empty cupboard if she moves into the Massachusetts executive suite next January. And there may not be much she can do about it, except to initiate what could be a whopping tax boost or massive cuts in state spending - or both.

Neither the governor nor state legislative leaders are ignoring what forecasters now say could be a $414 million shortfall in the state budget for the year ending June 30. But their baling-wire and chewing-gum solution for this year does nothing to put fiscal 1989 in balance.

Impartial observers close to the revenue scene say they doubt the state can make it very far into next year without major tax boosts.

Part of the worsening Massachusetts revenue picture has been painted by tax loopholes, like the one upheld June 9 by the state Supreme Court that allows businesses to deduct out-of-state losses from taxable income earned in the commonwealth.

But much of what has happened can also be traced to the state's living beyond its means while basking in economic prosperity during much of the past decade. State fiscal leaders and lawmakers have largely ignored warnings of stormy days ahead from independent watchdog groups such as the highly respected Massachusetts Taxpayers Foundation (MTF).

The shortfall for this year, which just two months ago was forecast at $77 million, has climbed to more than $400 million. Included is the corporate tax loophole that alone could force the state to shell out $92 million in rebates.

Whether new taxes will be needed early next year could depend on the size of the fiscal 1989 budget. The $11.8 billion spending package proposed by Gov. Michael Dukakis in January may be bigger than the commonwealth can afford, especially in view of scaled-down revenue projections. The measure could be $422 million out of balance, Richard Manley, the MTF's president, warned recently.

But Frank Keefe, the state secretary of administration and finance, plays down the chances of a fiscal crisis. He calls the Manley assessment ``premature'' and ``extreme.''

A major contributor to the current crisis has been inaccurate forecasts from the governor's revenue advisory board. That panel, established by law a dozen years ago at the prodding of the MTF, warned early this year that tax collections were leaner than anticipated last July, when the fiscal 1988 budget was approved.

The current situation stems, at least in part, from a spending policy keyed too much to an assumption that revenues would continue to grow. Neither the administration nor the legislature was prepared for a slowdown as they peered through rose-tinted fiscal glasses.

George Merry is a longtime observer of the Massachusetts political scene.