Massachusetts, Other States and Fiscal Problems - Essay Example

Massachusetts, Other s and Fiscal Problems The recent national recession has produced and continues to produce,declines in local and state revenues, as well as an increased need for public programs as the state residents, lose jobs, insurance, ad income. The imbalance between revenues available and funds needed for services has led to opening up of budget gaps in many states. States have also begun to experience significant shortfalls in their budgets for 2011, with more gaps being projected for the coming fiscal year. Since the recession started, most states have closed more than $425 billion in shortfalls. All states have to balance operating budgets at least biennially unlike the federal government, which can go on providing services even with a financial downturn. Since federal economic assistance is to expire before the recovery of most state budgets, the states must address these shortfalls by a combination of tax increases and spending cuts. This paper aims to discuss how the state of Massachusetts has differed from other states in dealing with their fiscal problems. An annual update released by the US Census Bureau for local and state government finances provided national data for the year 2010. The amount of local and state taxes in Massachusetts as total personal income share was 10.2% in the fiscal year 2010. Using this measure, the state of Massachusetts, recorded lower taxation when compared to twenty-four other states (Ellwood 23). Measuring of taxes as a personal income share allows financial experts a meaningful comparison tool to compare states. Taxes act as the primary funding source for people living in various states that are provided to government for the provision of such functions as public education, safety nets, libraries, playgrounds and parks. The new data from the census shows that Massachusetts has a level of taxation ranging at 10.42%, below the average nationally that came at 10.59% in 2010 (Ellwood 23). If the state of Massachusetts had a taxation level at the average nationally, then local and state government would have had an extra $1.1 billion to spend during the fiscal year. Most states across the United States started implementing budget cuts in spring 2008 with the recession bringing weakened revenues sharply into focus. These cuts have increased given the persistently high unemployment. Most states cut funding by 4.2% in 2009 and a further 6.8% in 2010 despite the continued need for services that are funded by the state (Ellwood 25). However, in Massachusetts, a few diversions were noted, especially with budget cuts. Massachusetts has four major categories in their budget where they spent much more than other states despite/ instead of effecting cuts. These were public welfare, transit, veteran services and unemployment compensation. Public welfare, behind education, is the second largest category in the census encompassing temporary assistance for needy families, food stamp program and Medicaid. Unlike other states, Massachusetts has seen overspending in this category, indicated by the low ratings for welfare reform. TANF afforded flexibility to most states for the administration of benefits provided the goals set out by TANF were satisfied. A comprehensive study gave Massachusetts a low grade for the satisfaction of these goals, with a score of 34.9% and a ranking of forty-sixth out of fifty states (Ellwood 28). Unemployment compensation includes benefits that are funded by the federal government such as basic unemployment benefits and cash benefits for military and civilian employees. This includes shared expenditure, for example, extended employment for those states with high rates of unemployment. One significant indicator that Massachusetts overspends in this category compared to other states in this category is the fact that, in 2008s second quarter, Massachusetts recorded the second highest rate of weekly payment at $391.91 in comparison to the national average at $285.28 (Gold 250). Massachusetts’ generous unemployment benefits have seen unemployment rates exceed 8%, and it has affected the trust fund. The transfer payment has also affected the competitiveness of Massachusetts adversely. Massachusetts’ rank as the second most generous state in unemployment benefits is measured by the first weekly average payments for the unemployed. Massachusetts has also declined to effect massive spending cuts on veteran services. This service is defined under the income maintenance and social services and is meant to capture state and federal veterans services that are not included in education, hospitals or public welfare social services categories. These include claims representations and outreach programs. This area, however, does not include spending on veteran targeted tuition assistance, veteran’s retirement homes or veteran’s hospitals. The high level of interest payments shows the levels of past spending for the state of Massachusetts (Gold 252). Debt is representative of spending that gets funding from the issuance of government bonds rather than utilization of currently derived revenues. Bonds are normally utilized for the funding of infrastructure projects bridges and roads. In recent years, however, the state of Massachusetts has begun to utilize it for the Massachusetts Life Sciences Initiative and other purposes to seed the biotech industry. The Big Dig infrastructural project was the biggest in and most expensive in US history. While they expected the federal government to pay the costs, they ended up paying for seventy five percent of the project. Massachusetts, however, did affect budget cuts in several areas that were much more than the national average or peculiar to Massachusetts only. Some of the sectors that suffered from these cuts were parks and recreational facilities and highways (Gold 253). The highways category involves spending on such areas as construction, operation, repair, and maintenance, as well as salting and snow removal. However, it does not include traffic control systems and policing of the highways. One reason that could be given for Massachusetts relatively low per-capita spending on its highways, in comparison to other states is its relatively high population density and small size. Massachusetts possesses only thirty six thousand miles roads that are not owned by the federal government in comparison to averagely seventy six thousand seven hundred miles for all the other fifty states (Gold 255). Via the division of spending on local and state roads by the number of local and state roads miles, the state spends approximately sixty three thousand one hundred dollars per mile of local and state owned public roads when compared to a forty seven thousand one hundred and eighty-seven dollar average per mile for all the other states. The highway-funding category, thus, is not as problematic as indicated by the per-capita figures. Although the state’s spending for highways per mile is greater than the national average, most of the funds have been diverted to financing and finishing the tunnel or artery project. The federal government allows states to utilize their own money to start projects before federal funding is made available under the advance construction rubric. The federal government aids states in bonding against federal grants anticipated in the future via the use of grant anticipation notes. Massachusetts issued one and half billion dollars worth of grant anticipation notes in payment of the central artery project. The outstanding balance on these grant anticipation notes is currently at $1.2 billion. The state of Massachusetts has been utilizing twenty-five percent of its obligations authority to repay the grant application notes. The grant application-note repayments are projected to rise by approximately 8.1% per year starting from the year 2009 to 2014 (Gold 257). The tunnel/ central artery project is set to continue in it absorption of resources that are intended for roads and highways in the state. In the category of recreation and parks spending, defined as support and provision of cultural-scientific and recreational facilities maintained in order to benefit all visitors and residents, the state of Massachusetts spends approximately sixty-three dollars per person. This is less than half of the average nationally, which averages at $138.73 (Gold 260). Massachusetts is in the group of states that have cut their budget allocations for five major categories including public health, the elderly disabled, K-12 and early education, higher education, and the state workforce. Additionally, Massachusetts, in its 2011 fiscal year, made a six percent or $2.2 million cut to its program for HIV/ AIDS prevention and cut down on dental benefits for around seven hundred thousand residents with low incomes in the Medicaid program (Gold 258). The Massachusetts budget also eliminated programs for health insurance aimed at illegal low-income immigrants. Local and state budgets, with their tax and spending adjustments, reflect the preferences of the residents since they can move out or vote officials out of government. The data used in coming up with these comparisons, however, cannot be used as a definitive source for citizen satisfaction. This is because it omits capital gain income. As a result, the measures overstate the share of economic resources that are paid in taxes, which makes public services appear more expensive to the residents of Massachusetts than they actually are. Works Cited Ellwood, John William. Reductions in U.S. domestic spending : how they affect state and local governments. New Brunswick: Transaction Books, 2012. Print. Gold, Steven. The fiscal crisis of the states : lessons for the future. Washington: Georgetown Univ. Press, 2012. Print. Read More