Baystate Budget Blues: Declining Revenue Causes Concern

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Baystate Budget Blues: Declining Revenue Cause Concern

[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. While the COVID-19 pandemic may have been financially devastating for many individuals and businesses, it was a boon to our Massachusetts state budget. Encouraged by billions in federal emergency assistance and a surprising surge in tax revenue, the state’s budget grew 40 percent between fiscal year 2020 and 2022.

[00:00:27] Now, as the first seven months of fiscal year 2024 unfold, legislators and the governor must recalibrate to a new normal that balances spending obligations with revenues that have fallen short of expectations — and without federal aid to make up the difference. Making that gap more difficult to close is the unanticipated expense of providing food and shelter to immigrants seeking sanctuary at a cost estimated to grow to nearly a billion dollars annually.

[00:00:54] Staying the hand of policymakers seeking to find balance with new taxes, Massachusetts must also contend with its loss of competitiveness to other states, owed to its high cost of housing and a tax regime that places it 46th out of 50. What near-term adjustments to state spending are required by our new revenue reality? And how can policymakers concerned with attracting and retaining vital talent and industry reduce costs for residents in a way that ensures our long-term prosperity? Joining me today is Eileen McAnneny, a Senior Fellow for Economic Opportunity at Pioneer Institute. With her expertise in the Massachusetts state budget, Eileen will provide insights into the current state of the 2024 budget, comparing actual revenue and spending against pre-July 1 estimates.

[00:01:39] Together, we’ll explore possible reasons for any surpluses or shortfalls and delve into the policy implications for legislators as they approach decisions for fiscal year 2025. When I return, I’ll be joined by Pioneer Institute’s Senior Fellow, Eileen McAnneny.

Okay, we’re back. This is Hubwonk. I’m Joe Selvaggi, and I’m now pleased to be joined by Pioneer Institute’s Senior Research Fellow, Eileen McAnneny.

[00:02:03] Welcome back to Hubwonk, Eileen.

Eileen McAnneny: Hi, Joe. Thanks for having me. It’s my pleasure.

Joe Selvaggi: Well, great. And I wanted to have you on the show again because a lot of chatter in the news and around Beacon Hill is about the Massachusetts state budget. for those who are following, perhaps not precisely or closely, I think they’re aware of the fact that, in general, tax revenue seems to be falling relative to last year’s take, and, this is all going on while we’ve had both budget increases, more spending, but also some unanticipated expenses, such as the money that’s now going to shelter those Americans claiming asylum or enjoying our state’s sanctuary status.

[00:02:42] So we’ve got now a Legislature and a governor trying to adapt to both less revenue and more expense than they had projected last year. So let’s, for the benefit of our listeners, let’s give everyone a sense of I guess this budget 2024 began last July, and like any budget, it’s an estimate of both what we’ll have for revenue and what we’ll have for expenses. So, let’s level set. What did our Commonwealth expect to spend this year, 2024, at the beginning?

[00:03:08] Eileen McAnneny: So, as you say, we’re in the current fiscal year 2024. It began last July 1, ends June 30th, and the budget that was passed included $56.2 billion dollars in spending. But, since then, it’s been revised downward by about $375 million dollars because tax revenues have not kept up with projections. They’ve been short each month of this fiscal year, and that continues through the latest month of January. So, what they’ll do since the deficit is about $1.2 billion and they’ve cut about $375 million in spending, they’ll make up for it with other nontax revenue sources to try to balance the budget.

[00:03:58] Joe Selvaggi: Now that $56.2 billion my quick math says that’s more than a billion dollars a week. That seems like a big number, and we’ve covered this topic, the budget, in the past, particularly during the pandemic through COVID and all this. That number, relative to the year before, but also, again, I’ll go back to the Wayback Machine and say, we were here watching the state budget go up by 40 percent between 2020 and 2022. So, these are already very large numbers. Share with our listeners that $56.2 billion relative to the past, is it a slow creep or are we sitting on top of some massive recent increases?

[00:04:30] Eileen McAnneny: There certainly has been a huge increase in the budget over the past couple of years. And a lot of that has had to do with all the money that’s come in from the federal government as a result of COVID. The state was flush with cash, as were most other states. And we were getting great tax revenue collections. They were increasing year over year. And between the two, we saw big increases in state spending.

[00:04:56] Joe Selvaggi: Yeah, indeed. I guess COVID was bad for everyone, but I think our economy, the pandemic smiled on us, because of our focus on eds and meds and those things that help economies during pandemics, but that’s past us now. Let me just, for our listeners — when a budget is being made, who is in charge of estimating how much revenue, or let me just also say, unlike the federal government, we can only spend what we have, right? We, there’s no sort of magic ability to print money or borrow money, so we have to guess how much revenue we’ll get. Who makes those estimates when we’re projecting how much we’ll take in revenue?

[00:05:34] Eileen McAnneny:  Yeah, it’s a great question, and it’s a joint effort, right? So, what happens, the kickoff to the budget is a consensus revenue hearing, and they allow a lot of experts to come in and provide projections of what the tax revenue collections will be for the following fiscal year, and they base it on economic predictions and other things, and the chairs of the Ways and Means Committee in both the House and the Senate — and the Secretary of Administration and Finance for the governor’s office — then agree on a number out of the range that is provided. And they all may spend that money differently, but the bottom line for each budget will be the same. And it will be that consensus revenue figure.

[00:06:19] Joe Selvaggi: So, you said we fell short, and we’ve fallen short every month for the whole entire fiscal year, including this past month. It’s just beyond January. What, where are we missing our mark? And I suppose there must be something that surprised the upside, but where were we falling short if we are falling short?

[00:06:36] Eileen McAnneny: Well, so if you mean which revenue categories, interestingly enough, it’s pretty much across the board, right? So, the biggest drop, though, has to do with a category called estimated tax payments and that captures income such as interest, dividends, returns on capital gains, and it’s money that’s other than wages, if you will. And that’s paid, by and large, by high income earners, and that dropped by over 16 percent year over year.

[00:07:09] Joe Selvaggi: So, it’s odd to me that those kinds of taxes would be going down. We’ve — the counter narrative is that the economy is strong, unemployment’s low. Why would an income, if you will, estimated income tax, go down when we still have solid wage growth and a somewhat thriving economy?

[00:07:27] Eileen McAnneny: That is the $64,000 question. And Secretary Gorkiewicz, who is the Secretary of Administration and Finance, was asked that very question yesterday at a budget hearing. And what he said is bonus payouts — on which Massachusetts relies greatly, we have a lot of exempt workers, white collar workers, people in finance and professional services and the like — their bonuses were less. I think that’s part of the reason. A follow-up question was asked, do you think it’s an impact from the millionaire’s tax? And what the secretary said is, too soon to tell, because this is the first year it was in effect and those tax returns won’t be due until October. But, certainly Pioneer and other folks thought that could very well be what happened if this income surtax was enacted, and that revenue is down. So, whether it is definitively a result of that, I don’t know. Time will tell. But I think it is a factor.

[00:08:23] Joe Selvaggi: Yes, I think that’s not a hard conclusion to come to. You tax big incomes, and they either reduce that income, which would be to the delight of millionaire tax supporters, but also those people, of course, have other options like leaving. So, this may not come as a surprise to everyone, but I don’t want to editorialize too much. We hear a lot about, in the past, we’ve already mentioned COVID, that a lot of the money that was being spent by the state was not provided by tax revenue but rather from the federal government.

[00:08:53] What percentage? And how has that changed or how does the fact that the government isn’t piling lots of money up towards the states, in a sense, the states have to pay their own way these days — what’s the impact of that sort of drying up?

[00:09:07] Eileen McAnneny: So, I think certainly after COVID, there’s been a big drop off in federal money, right? Just to give the listeners some perspective, Massachusetts got about $115 billion in COVID-related money from the federal government, and about $50 billion of that went to state and local governments. So the influx of revenue was enormous, right? But even under ordinary circumstances, the federal government provides a decent amount of revenue to the states. The biggest federal reimbursement comes in the form of Mass Health payments. So, we’re expected — the Mass Health spend this year is supposed to be about $20-plus billion dollars and the federal government covers about half of that. And then there are other reimbursements too. So, it’s not an insignificant number.

[00:10:03] Joe Selvaggi: Yes, indeed. Before we go too much further. We’ve again, both of us, talked about the millionaire’s tax again. I’m guessing your answer here, but the advocates of this tax, which just passed last year, were that it would bring in $2.1 billion dollars. This podcast was a little bit skeptical that, of course, that means nobody changes his behavior. So, naturally it’s going to be less than that. But what now, given that we were a fair way into the year, what do we see as the likely take for this tax?

[00:10:36] Eileen McAnneny: Well, so you’re right that the original estimates were over $2 billion. But it’s important to remember, those were prepared about a decade ago. So, this millionaire’s tax proposal has been hanging around for a while, right? And it was defeated if you remember the first time around. And so that revenue estimate is pretty old at this point. But I think what they’re projecting or what they’re planning to spend for the current fiscal year is about a billion for the upcoming fiscal year it’s about $1.3 billion. And that’s a pretty conservative number, I think, by design.

[00:11:10] Joe Selvaggi: Okay. All right. And again, I don’t want to beat this dead horse here, but, this millionaires’ tax was supposed to be targeted somehow they were going to partition this money target for education, transportation, all kinds of good things. Are they doing a good job? You’re a watchdog. Are they making sure it’s in a, whatever you want to use the metaphor black box or whatever? Is it going to the right places? Are we adding that money directly to those programs that like education, transportation that we all value? Or is it just thrown in the pile with the rest of the revenue?

[00:11:40] Eileen McAnneny: Well, so, you know, I agree with you, you would say money is fungible and it is, right, to a certain extent? But I will say, I think due to a lot of the criticism they received from folks that the money would just be used and go to pay for other expenses, they have taken several meaningful steps to segregate the money. So, there’s a separate trust fund that all of the revenues from the income surtax go into, and then there is an accounting of where it was spent. And so, at least for now, it looks like it actually will be spent on transportation and education, about 60 percent of it for education, about 40 percent for transportation.

[00:12:22] Joe Selvaggi: Okay, now we’re again, we’ll move away from this millionaires’ tax, but of course it comes with an attending cost, right? We’ve implied or stated that it may cause some people to either change the way they earn their money or where they earn their money. They may, as you say, with the dawn of Zoom and the fact that we can now work from anywhere, people may just decide to work from a state with less tax. We’re looking at less revenue. I want to get to this later in the podcast, but do you think that this is a trend, whereby tax revenues going down, when the economy is booming and theoretically it should be going up? Do you think we’re at the beginning of a trend, right now, as we see ourselves teetering on to, into the negative growth category?

[00:13:02] Eileen McAnneny: I think it’s the beginning of a trend, honestly, that was prompted to a large degree by COVID, and I say that for a couple of reasons. I think lots of people had an epiphany during COVID, right? They didn’t want to work as much and many people retired. Other people said, hey, I don’t like my lifestyle. I want to go where there’s more open space and not be around all these people who could contaminate me and they moved to greener pastures. And then there are folks who change fundamentally the way they work. They don’t go into the office five days a week. Technology and the ability to work remotely at least part of the time has provided people with a lot more options.

[00:13:42] And so, I think there are lots of fundamental shifts that are happening and that has lasting impacts for Massachusetts. And so I think we need to be aware of them and plan accordingly. And you hear the governor say often, right, we have to be competitive. We need to be more affordable. And I think that’s in part in recognition of the fact that people have more choices and other states offer a lower cost of living and we need to up our game to remain competitive.

[00:14:15] Joe Selvaggi: Well, good. I want to talk about that a little bit more later if we have time, but let’s switch. We’ve been talking about the revenue side. What about the spending side? Again, I mentioned already, we don’t have the luxury of being able to run a debt or print our own money. So, relative to last fiscal year, how much more did we budget? Did we say, okay, look, 2023 was great so 2024 is going to be a little bit better, let’s raise it by x? How much larger was this budget based on 2023?

[00:14:41] Eileen McAnneny: So, the governor’s budget is a 2.9 percent increase over the budget that was approved last July, right? And as I mentioned to you, that budget has since been revised, and what the governor has said is that is well below the rate of inflation and so forth. So I think it recognizes that revenues have certainly softened, but they are able — they use some non-recurring revenue sources to fill in the gaps. And I think the assumption is that this is a passing phase, we’ll get over fiscal year 2025 and then revenues will recover or some of these expenses may go away. And time will tell if that actually happens or if this is a more permanent change in the fiscal situation,

[00:15:34] Joe Selvaggi: So, I want to drill down on a little bit more, but what you’re saying is they’ve had to adjust a little bit downward when we’re doing something like midyear when we’re trying to match spending with revenue. Is that across the board cut or are some of the new programs the governor has proposed been axed or put on the back shelf? How does one pare back on spending? We’re going to talk about where the revenue comes from for additional spending, but if they have to spend less, how does that happen?

[00:16:01] Eileen McAnneny: So, it depends on when in the year it happens, right? But the governor in January took measures to cut and so those are cut. She’s able to unilaterally say, ‘Hey, revenues aren’t coming in as we expected. It’s my job to balance the budget. I am cutting some of these programs,’ right? And so that’s, that’s what happened in this instance. But if you’re doing it at the beginning of the year, there’s a little more wiggle room depending on how early you do it, the more options they have, essentially.

[00:16:29] Joe Selvaggi: I want to drill down on a very important point that you made, which is to say that. Our disappointing revenue, we’re essentially putting a patch on it, which is to say, okay, 2024 doesn’t look like it’s turning out to be as good as we thought. We’re going to use some money that is not recurring, meaning we’re going to borrow from, let’s say, money we didn’t expect to spend, money that maybe just fell in our lap as a one-time thing, so that you’re sort of ignoring or papering over a structural deficit, meaning you are setting up a system whereby you are spending more than you’re taking in. Describe for our listeners, you mentioned non-recurring revenue. To me, that’s a red flag that says, ‘okay, this is money that I’m only going to get once and I’m not going to get it next year.’ What kind of funds are we spending now that we won’t be able to enjoy in the future?

[00:17:14] Eileen McAnneny: So, there are there are a couple of funds, right? And, as I mentioned, when the federal government provided a lot of money, Massachusetts banked some of that money for discrete spending areas, right? So there was one for daycare and affordable child care and so forth. And the governor uses about $300 million dollars from that to pay for education-related expenses, so, essentially withdrawing some money. The other thing is we almost had a second stabilization or reserve fund with these excess federal monies. And it’s called a transitional escrow account. And so, Gov. Healey has proposed using the balance in that fund to pay for the cost of emergency assistance that you had mentioned earlier. And so, money to pay for that would come from that trust fund. And then there are other ways the state collects money. So each — so many departments raise money through fees or fines or other ways. And maybe there’s more of that money that can go for the budget. Or, they tell departments, hey, everyone’s going to cut their expenses by 2 percent, and those — that money that’s left over is called reversions. And sometimes that helps to bridge the gap. So, they’re looking for money any way they can, right, which is what happens. And there are cuts to the budget. There’s about $450 million that was cut in the fiscal year 2025 budget the governor proposed, and  about $500 million in less spending than would have occurred otherwise. So it’s really a variety of sources.

[00:19:00] Joe Selvaggi: So we’re, again, I don’t want to go too far into the future because we, of course, this is all going to inform what the budget looks like for the next year, but I really want to get to a very important point, which is, some of the “unexpected expenses,” a whopper of an unexpected expenses, the wave, we covered this briefly in a podcast about six months ago saying, look, the people we see on TV, coming across the border in Texas are somehow going to figure out a way to get to Massachusetts given our status as a sanctuary state, we don’t get real, precise numbers about how many are coming, but we know the bill, it’s quite a large one.

[00:19:32] What are the estimates of this influx of, let’s — I don’t know what we want to call them — undocumented residents or asylum seekers, whatever euphemism we want to use? Somebody’s got to pay for them to live, where’s that money coming from if we didn’t expect it already?

[00:19:48] Eileen McAnneny: Yeah, I would say it’s an unforeseen expense, right? No one was planning on having the migrants come. I do think it’s important though, because there is a somewhat, a little misperception about who that emergency assistance money is going to. And about half of it is going to immigrants, but about half of those families are actually Massachusetts residents that essentially have lost housing because of the crisis of housing affordability, right? And maybe neither stream of people go away anytime soon because we’re not going to fix the housing cost crisis overnight. And until the federal government takes action to actually restrict some of the border stuff, we can expect that there will be an influx.

[00:20:35] So, I think these expenses will be incurred for a while, right? And even though the governor’s capped the number of families at 7,500 in this emergency assistance program, I think the cost will manifest in other ways, right? As families come and children are educated, maybe there are some costs, English as a Second Language, or things like that. I think our healthcare system will absorb some cost in that regard. And it’ll trickle through state government. And so those expenses will probably be hard to quantify, but I think there absolutely will be additional expenses.

[00:21:14] Joe Selvaggi: So this is an example of what some might consider a one-time cost. It’s a surprise in that it’s an influx of people, that it’s an expense we hadn’t had last year. But, as you’re saying, we have to anticipate it going forward, right? It is — I won’t ask you to make any promises — but I have to believe the government doesn’t imagine, in 2025, we won’t have the same problem, perhaps even larger problem, right? This would be anticipated then going forward into 2025. And what I’d say is if, again, we only have a finite amount of money based on our revenue, whatever money goes to support these new inhabitants is money that’s not going to people who were here before, right? This is — it’s one pie and, when that money goes there, it’s not going to some other program that some might deem worthy. Is that fair?

[00:22:01] Eileen McAnneny: I think that is right. And to clarify, I think what they’re suggesting is that the balance in that transitional escrow account that I mentioned be used for emergency assistance, and certainly what they’re anticipating the cost for 2025 is much bigger than they anticipated for 2024, and in fact, they’ve had to seek supplemental funds to cover the cost in the current fiscal year.

[00:22:28] And so that is a sizable number. I may get it wrong. I think it’s over $900 million, though, that they’re projecting the cost will be for fiscal year 2025. So, it is a sizable new cost and it certainly does crowd out some other spending that might have taken place had we not had this in flux.

[00:22:50] Joe Selvaggi: Indeed. OK. Well, you mentioned the rainy day fund. I think you’ve mentioned there’s, you’ve got a provisional fund and a rainy day fund. Some of the critics of what’s going on now in the State House have said that the governor is simply “raiding” the rainy day fund as by my reading, it seems as if we were already planning to add to the rainy day fund, but now we’re adding less. Clarify for our listeners, are we “raiding” any rainy day fund? Or, you mentioned the provisional fund, which is again, provisional, but the rainy day fund is that money that we might spend if the economy takes a downturn for a couple years. Share with us, are we going after that at all?

[00:23:25] Eileen McAnneny: Well, no, not technically. And by that, I mean, the balance in the fund is not going down. It has about $8 billion in it now, which is a historic high, and they’re not withdrawing money from it. What they are doing, though, is not depositing as much money as would have gone into the stabilization fund. So they are taking some of that money and redirecting it towards other expenses.

[00:23:54] Joe Selvaggi:. Okay. All right. We do have a little more time and I do want to focus on what you mentioned. You and I, in an earlier podcast, agreed that the governor seemed to be somewhat aware that Massachusetts residents have choices and that OK, as much as we love it — I love Boston, I love Massachusetts — people have choices. They can work where they want. And as you say, they might want wide-open spaces. They might want warmer winters. And we also talk about other states perceiving their challenges. They want the best and brightest. They want investment money. They want smart people. They want business. So, we’re sort of all laboratories of democracy, 50 states, and we’re looking at a trend. Since 2021, I’ll just, for our listeners benefit, since, yeah, three years ago, 25 states have cut individual tax rates, 13 states have cut corporate tax rates, two states have cut sales tax rates. We’re now 46th out of 50 states on tax climate and 50th or dead last on unemployment insurance systems, which affect small businesses. You know, this is the lifeblood of our economy. So I’ll contrast that statement with a year ago, our economy, Massachusetts, was growing faster than the average state U.S. economy. In Q3, we’re average. In Q4, we’re growing more slowly than the other 50 states, on average. Do you see this as a trend that, someone like me, and perhaps like you, say, look, the long-term effects of approaching budgets by saying we should always be raising taxes and always increasing spending. Those of us who say, maybe there are costs to those kinds of choices. Do you think we’re seeing the beginning of a really harmful trend? And one, I guess I’m begging the question, do you see, is it so obvious or the blinking red light? So obvious that you’ll get some concern in the State House when they’re considering which direction to go in?

[00:25:41] Eileen McAnneny:All right, lots to unpack there. so, so let me say this. first of all, I do think the governor recognizes the need for Massachusetts to be competitive in what she will say publicly, which is true, right? She put forward a billion dollar tax package and actually got it passed through the legislature. And the question is, is that sufficient? Does it do enough with respect to affordability and competitiveness? And I would say on affordability, there are several provisions and it helps discrete groups of taxpayers. So, there’s like a renters’ deduction increase, there is a senior circuit tax breaker for,elderly people who own homes. There is a dependent deduction, actually dependent credit, which is among the most generous in the country. There’s a higher earned income tax credit for families earning, low wages and so forth. So lots of relief to some taxpayers to help make Massachusetts more affordable. On the competitiveness side, there are a couple of more modest changes. There’s a change to the estate tax, which everyone probably knows by now that the threshold was increased from $1 to $2 million, which helps. On short-term capital gains, the rate was reduced from 12 to 8.5%, but it’s still higher than long-term capital gains or regular income. And we’re one of, I think only now,  three states that actually tax shor-tterm capital gains at a different rate. And then there was an allowance of single sales proctor apportionment, which helps companies that are headquartered or domiciled here. But in all three instances, those competitiveness measures don’t really provide us with a huge advantage. They put us more in the middle of the pack. We’re less of an outlier, if you will. And so I do think this isn’t a one and done situation. I think we’re going to have to look continuously at what Massachusetts can do to help reduce cost. And, and I think part of the reason our economy has slowed down is we’re losing people. We have seen an out-migration, and many of the people who are moving are of workforce age, between 25 and 34, probably to get cheaper housing, but that means they’re not available to fill jobs here.

[00:27:58] And as we know, lots of Massachusetts industries are conducive to remote work. So lots of professional services, R&D, those types of things, that can be done elsewhere. Some, in some instances are, and perhaps that money is taxed in other jurisdictions, right? And so I think there’s an awful lot of variables and moving parts.

[00:28:21] What I will say, though, is I think that Massachusetts has always thought, oh, we can rest on the fact that we have eds and meds, they say. So, institutions of higher learning and large, world-renowned healthcare centers, and that will be enough. And I think there are warning signs that may not be true. And I think, with respect to education, the demographics are such, we don’t have as many kids entering college as we once did. And so there are fewer of them, and for many of them, colleges become unaffordable, right? So, you may see lower enrollments in some of the schools. For healthcare, I think costs have become an impediment to many people seeking care. And so, I just, I think we have to be aware that lots of other industries can help move Massachusetts forward. And we need to make sure we’re taking steps to retain and attract them.

[00:29:18] Joe Selvaggi: To focus on our conversation\, which is the budget. And again, we’re talking about present and lessons for the future. Do you think, let’s say the disappointing revenue will lead the governor, I guess the Legislature — I just keep saying the governor, but everybody  on Beacon Hill to say — oh, okay, we have two paths we can take. We can spend less or we can tax more. Do you think this might, let’s say, discourage Gov. Healey’s ambition to, I think you and I have discussed the fact that she had a lot of tax relief in mind and only some of it, she’s going to pass it over time. Might that sort of discourage future tax relief packages? Or in fact, and I find this hard to believe, but I’ve heard that it’s actually conversations about raising taxes even further, which is, I’ve heard talk about raising taxes in the form of real estate transfer taxes, which, if housing’s too expensive, transfer taxes make it more expensive too, and also allowing localities to raise taxes on meals and hotel rooms and all those things that keep people coming into the state and going out. Is it possible — you and I are implying or suggesting that lower taxes might make us a little more competitive — is it possible we might actually be headed for higher taxes?

[00:30:21] Eileen McAnneny:  This is Massachusetts, so it’s always possible, I would say. I’m not sure how probable it is with this governor. I think the real estate taxes that you’d see an outcry, right? Just, people cannot afford to purchase homes and imposing additional costs would act as a further impediment. I would be surprised. The other thing that I would say is, there have been proposals that would allow municipalities to raise taxes that they could use. I don’t know if that may have a little more traction because it’s not the state imposing, it would be local rule. And if they chose to do it, I guess they could. So, I don’t know. One thing I will say, though, I think an untapped opportunity is, it doesn’t always have to be a binary choice where we spend less or collect more. I think we can spend less, but it doesn’t mean we provide fewer services. I think we could do a better job of providing what we do offer and being a little more efficient using technology to help streamline or just reviewing programs that have outlived their usefulness. And so I think there is an opportunity to right size the budget. And I guess I hope that’s where we go in the first instance, because longer term, it serves everyone, and, and I think there’s a lot of room for improvement there.

[00:31:46] Joe Selvaggi: Yes, I, you know, we’re at the end of our time and I don’t want to editorialize any more than I already have, but I agree with you, it would be nice if we would be more efficient, but of course, one person’s waste is another person’s income, so, those forces are well entrenched on Capitol Hill.

[00:32:02] I just want to say one more thing. You mentioned the fact that it’s Massachusetts, so, of course, our, our instincts are to raise taxes, but there was a time, we’re both old enough to remember when we were known as Taxachusetts, and I think a lot of people imagine that somehow our progressive, inclinations is why we’re so prosperous. But I think it seems like the direction of causation is the other way. We were wildly interested in higher taxes for a time. Massachusetts’ economy was terrible. We decided to reduce taxes, do essentially what you and I are suggesting is a wise move, reduce taxes and, you know, Massachusetts came back to life and the economy is thriving. Now it seems like the pendulum is about to swing the other way, going back towards becoming Taxachusetts again, or perhaps at least not eschewing, higher spending and higher taxes. Do we need to, in a sense, live through another bust cycle of people leaving, before we learn that higher taxes are not the way, and lower spending might be the way? Or do you think we don’t need to, we don’t need to make that mistake? We can learn from our past or learn from our current wisdom that we can correct our path, in a different way this time. Well, again, I know that’s a huge meandering question, but I think we can be smart about our policy without having to devastate the Massachusetts economy in order to learn that lesson.

[00:33:20] Eileen McAnneny: So, what I would say is, I think there is a lot of awareness about Massachusetts costs are pretty high and we need to reduce them. The governor talks about it every time she speaks publicly. So, and I think certainly the executive branch is aware of that. And I’m sure legislative leaders I think part of the problem is right. It’s a big ship to turn and so it all takes a little time. And as you pointed out, one person’s waste is another person’s income. And so these aren’t, they’re not easy. They certainly can result in some protracted and probably heated conversations. And so, I think that’s part of the issue, right? That, even if they want to do it they don’t know how, or they don’t have the consensus to make it happen. But I do think acknowledging that there is a problem is an important first step. And I do think that we’re doing that. I think the other issue is often Beacon Hill will look at an issue, take some steps to address it, and then move on to the next one.

[00:34:27] It’s not a regular look-back to see and tweak and change and amend. And I think, as I said previously, I do think we have to keep an eye on this and it’s not a case of where one bill or one measure is going to solve this. I think it’s going to take several over the course of several years to try to get Massachusetts in a place where its costs are lower and we are able to attract folks.

[00:34:55] Joe Selvaggi: Yeah, indeed. And hopefully listeners will, we’ve piqued their interest. So, we’re running out of time. Where can our listeners read more about your budget analysis, and your good work there at Pioneer Institute?

[00:35:07] Eileen McAnneny: It’s all on the website, right? And it’s under the Economic Opportunity tab, but lots of information about the budget and just other components of a strong economy can be found there.

[00:35:18] Joe Selvaggi: Wonderful. Yeah, and I hope they learn a lot and perhaps even pick up the phone and reach out to the legislators and share with them their opinions on what they’ve learned. So thank you for joining me today, Eileen you’ve been a great fund of information. I appreciate you enlightening our listeners and filling us in on where we stand on the budget. Thanks for joining us.

Eileen McAnneny: Thanks. My pleasure. Take care, Joe.

Joe Selvaggi: This has been another episode of Hubwonk. If you enjoyed today’s show, there are several ways to support Hubwonk and Pioneer Institute. It would be easier for you and better for us if you subscribe to Hubwonk on your iTunes podcatcher. It would make it easier for others to find Hubwonk if you offer a five-star rating or a favorable review. We’re grateful if you share Hubwonk with friends. If you have ideas or comments or suggestions for me about future episode topics, you’re certainly welcome to email me at Please join me next week for a new episode of Hubwonk.

Joe Selvaggi engages in a conversation with Pioneer Institute’s Eileen McAnneny, Senior Fellow for Economic Opportunity, to analyze the status of the 2024 budget. They compare actual revenue and spending with pre-July 1 estimates, investigating potential reasons for any surpluses or shortfalls. They also dive into policy implications for legislators as they approach fiscal 2025.


Eileen McAnneny is a Senior Fellow in Economic Opportunity at Pioneer Institute. She was formerly president of the Massachusetts Taxpayers Foundation, and has experience in government relations, public policy, advocacy, and management in both the public and private sectors. She was president and CEO of the Massachusetts Society of CPAs, Director of Public Policy at Fidelity Investments, and served as Senior Vice President of Government Affairs and Associate General Counsel at Associated Industries of Massachusetts, where she focused on healthcare and tax policy issues. McAnneny served on the state’s 2007 Tax Commission and was formerly a staff attorney for the Joint Committee on Revenue of the Massachusetts legislature. In 2018, she served as Vice Chair of the Governor’s Commission on the Future of Transportation. She is a cofounder of the Massachusetts Employers Health Coalition, serves on the Group Insurance Commission, is on the board of the Massachusetts Business Alliance for Education, and is secretary of the National Taxpayers Conference. McAnneny holds a bachelor’s degree in politic science, cum laude, from Tufts University and earned her juris doctorate in law from Suffolk University Law School.