Bay State Ends Fiscal Year With a Surplus

A Medicaid reimbursement will make all the difference

AFTER struggling to climb out from several years of ballooning deficits, Massachusetts is expected to end the June 30 fiscal year with a projected budget surplus of $80 million. But despite the good news, state economists, lawmakers, and political observers warn of lean times ahead and are unconvinced the surplus signals an economic turnaround for the state that once boasted of its Massachusetts Miracle.

``In the euphoria over actually having a surplus for fiscal '91 ... a lot of people are thinking that the economy has turned around,''says Dominic Slowey, press secretary for the executive office of Administration and Finance.

``There's a lot to be happy about in financial terms ... but we still have a lot of touch and go months ahead of us,'' says Mr. Slowey.

``[The balanced budget] reflects an awareness on the part of the legislature that it must come to terms with its fiscal difficulties,'' says Bob Tannenwald, an economist with the Federal Reserve Bank of Boston. ``In the sense that it shows a resolution of political issues, that's a good sign, but I don't see it as an indicator of economic activity.''

The $850 million deficit Gov. William Weld inherited when he took office in January was closed suddenly last week, after the state learned it would receive $489 million in federal Medicaid reimbursements before June 30.

A part-time worker in the Department of Public Welfare had discovered in January that the state could qualify for the money. After months of checking the claim, the state finally confirmed that the money would be forthcoming. The payment eliminates the need for drastic last-minute budget-cutting steps such as a one-week shutdown of government.

``Without that $489 million the state would be in disarray,'' says Fred Breimyer, president of the New England Economic Project. ``That's a critical amount of money.''

Governor Weld has already enacted a variety of cost-cutting measures such as employee layoffs, unpaid state employee furloughs, and cuts in state services.

But although the 1991 budget is now balanced, the state still must squeeze more fat out of a fiscal 1992 budget that is nearly $800 million less than that of 1991, while revenue estimates are $500 million less.

Last month the Weld administration and Democratic legislative leaders agreed to base their 1992 spending plans on a projection that the state will receive $8.3 billion in tax revenues.

The House approved a $12.8 billion budget in May which would not raise taxes but instead require an 11 percent reduction in aid to cities and towns and hefty cuts in welfare, Medicaid, and housing programs.

On Tuesday the Senate Ways and Means Committee approved a $12.9 million budget that also calls for no new taxes and for cuts in programs and services.

However, the Senate plan is seen as less severe than the House version. Although cities and towns would face an 11 percent cut in state aid, they would be able to offset the cuts in several ways. One way: deferring teachers' summer paychecks from June until July, the start of a new fiscal year.

In addition, the Senate plan includes a radical proposal for a special three-member governor-appointed board that would have the power to impose cuts on the so-called ``budget buster'' accounts - Medicaid, pensions, and the Massachusetts Bay Transportation Authority. Cuts made by the board could be overridden by the legislature.

The Senate will debate the plan today. A House-Senate conference committee then will work out differences between the two versions. The result is expected to reach the governor's desk before July 1.

Human service advocates and liberals have been pushing Weld to restore funds to social service programs that face deep cuts. They charge that he is deliberately lowering tax revenue estimates to make it easier to enact deeper cuts that would otherwise be politically impossible.

April and May tax revenues both surpassed estimates. Human service advocates are concerned that instead of restoring services Governor Weld will use this extra revenue money for tax breaks for big businesses.

``Revenues are coming in well ahead of Weld's projections ... so when you combine the higher than expected revenues with this $489 million windfall from the federal government, the surplus in our judgment will be well in excess of [what] Weld is suggesting,'' says Jim Braude, executive director of the Tax Equity Alliance for Massachusetts.

``The governor has attempted to convince the public that things are far worse than they are so that when we end up somewhere in the middle he will seem far more heroic than he would have otherwise,'' says Mr. Braude.

But Mr. Slowey of the Office of Administration and Finance counters:

``They're basically trying to spend the money twice. The money's already been spent. It's going to fill a budget deficit - not to restore programs.''