The housing affordability crisis in Massachusetts is well known and well documented. According to the Warren Group’s January press release, 40,828 single-family homes sold in Massachusetts in 2023, a staggering 22.4 percent decline from the previous year and the lowest number of sales since 2011. Meanwhile, the year-end median single-family home price increased 2.6 percent to a record high of $570,000.
This combination of limited inventory and higher housing prices, against a backdrop of high interest rates, makes for a very challenging housing landscape. So challenging, in fact, that a growing number of young people are leaving Massachusetts, most likely in search of more affordable housing options.
A solution put forth by former Gov. Charlie Baker and adopted by current Gov. Maura Healey has been to build more housing. The MBTA Communities Act, passed in 2021, provides that the 177 communities serviced by the MBTA must create multifamily zones to spur housing development close to public transportation. This approach could alleviate the housing affordability crisis while also providing some congestion relief and advance the state closer to its climate goals.
All of this seems logical and straightforward enough, right? Think again. The issue is an emotionally charged one, with passions high on both sides.
The recent debate in Milton demonstrates why that is so. At issue is the zoning plan that had been approved by town meeting last December, which would allow for construction of almost 2,500 new multifamily units in six areas around town — including around the Mattapan Trolley Station, the Eliot Street Corridor along the Neponset River, East Milton Square, and Granite Avenue.
Opponents challenged the measure after the fact and collected enough signatures to force the plan to be subject to a town-wide vote. On February 14, Milton residents rejected the zoning plan by a vote of 5,115 to 4,346.
As in most affected communities, the issue denotes so much more than the need for more housing — a fact on which most people can agree but where the consensus often ends. Some residents don’t want new developments to change the character of the town. Increasing the housing stock by 25 percent, as the Milton proposal would have done, may be much too soon for some residents who bought their home based on the largely single-family housing stock that characterizes much of Milton.
Others complained that locating over 500 homes in East Milton Square will make the current bottleneck to get on the Southeast Expressway more time consuming and unbearable. For other residents, this comes down to an argument between the haves and have-nots. Many of the more affluent neighborhoods of Milton would be untouched by the new zoning, further burdening those areas with more modest houses and smaller lots.
So far, Milton has been the community to push back the most on the requirements of the MBTA Communities Act. Its rejection of the plan means that it will lose some state funding as a penalty for noncompliance. Future efforts may materialize to develop a more acceptable plan that satisfies enough residents to garner approval of a new zoning plan.
If that happens, the Milton experience could be an example of why local rule has such a stronghold in the Commonwealth. If that doesn’t happen, it could portend how local rule may serve as an obstacle to the state’s best-laid plans.
This week on The Learning Curve, guest co-hosts Alisha Searcy and Charlie Chieppo interview Mary Tamer, Executive Director of Democrats for Education Reform, Massachusetts. She focuses on the historic impact of the 1993 Massachusetts Education Reform Act on the commonwealth’s students’ high achievement on national and international measures. She explores the politics of the Massachusetts Teachers Association advocating against the MCAS test as a graduation requirement. In closing, Ms. Tamer also discusses the rise of teacher strikes and their implications for education reform in the Bay State.
Stories of the Week: Alisha talks about an article from The Hill on optional SAT scores; Charlie reviews a story from Anchorage Daily News on Alaska charter schools expanding.
Guest:
Mary Tamer is the Executive Director of Democrats for Education Reform Massachusetts. She is a longtime education advocate and Democratic activist who is a product of the Boston Public Schools (BPS), a former BPS parent, a former member of the Boston School Committee, and past president of the League of Women Voters of Boston. Prior to joining DFER, she worked for SchoolFacts Boston as the Education Research Director, and with the Massachusetts Charter Public School Association. Mary earned a B.A. in English and journalism for the University of New Hampshire, and an Ed.M. in Education Policy and Management from the Harvard University Graduate School of Education.
Tweet of the Week:
Click here to read a transcript
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 hubwonk@pioneerinstitute.org. 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.
Guest:
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.
“She’s a good girl. She helps me a lot. She has big, big dreams. I don’t have the money, but she has big dreams. I hope she’s going to get everything, but she works so hard. She works so hard in school.”
“Our family is needing to make some really big sacrifices because we believe this is important, and so, we’re basically going to do whatever it takes… Sometimes we look at each other and go ‘I don’t know if I can do it again another month…’”
“A lot of the families have to sacrifice and work multiple jobs… And just scraping together enough money to just make tuition, just the basics.”
“It is discriminatory, that parents who want to choose an alternative to public school for their children, would not in any way receive any compensation for that, whether it be tax credit, whether it be a voucher…”
In the 1840s, nativist movement leaders formed official political parties and local chapters of the national Native American Party (later the American Party), although they continued to be commonly known as the Know-Nothing Party. Politicians sought to insert provisions into state constitutions against Catholics who refused to renounce the pope. The Know-Nothing movement brought bigotry and hatred to a new level of violence and organization.
The party’s legacy endured in the post-Civil War era, with laws and constitutional amendments it supported, still today severely limiting parents’ educational choices. A federal constitutional amendment was proposed by Speaker of the House James Blaine prohibiting money raised by taxation in any State to be under the control of any religious sect; nor shall any money so raised or lands so devoted be divided between religious sects or denominations. These were then named the Blaine Amendments of 1875.
in recent decades, often in response to challenges to school choice programs, the U.S. Supreme Court has demonstrated great interest in examining the issues of educational alternatives and attempts limit parental options. Massachusetts plays a key role in this debate. The Bay State was a key center of the Know-Nothing movement and has the oldest version of Anti-Aid Amendments in the nation, as well as a second such amendment approved in 1917. Two-fifths of Massachusetts residents are Catholic, and its Catholic schools outperform the state’s public schools, which are the best in the nation.
The housing affordability crisis in Massachusetts is well known and well documented. According to the Warren Group’s January press release, 40,828 single-family homes sold in Massachusetts in 2023, a staggering 22.4 percent decline from the previous year and the lowest number of sales since 2011. Meanwhile, the year-end median single-family home price increased 2.6 percent to a record high of $570,000.
This combination of limited inventory and higher housing prices, against a backdrop of high interest rates, makes for a very challenging housing landscape. So challenging, in fact, that a growing number of young people are leaving Massachusetts, most likely in search of more affordable housing options.
A solution put forth by former Gov. Charlie Baker and adopted by current Gov. Maura Healey has been to build more housing. The MBTA Communities Act, passed in 2021, provides that the 177 communities serviced by the MBTA must create multifamily zones to spur housing development close to public transportation. This approach could alleviate the housing affordability crisis while also providing some congestion relief and advance the state closer to its climate goals.
All of this seems logical and straightforward enough, right? Think again. The issue is an emotionally charged one, with passions high on both sides.
The recent debate in Milton demonstrates why that is so. At issue is the zoning plan that had been approved by town meeting last December, which would allow for construction of almost 2,500 new multifamily units in six areas around town — including around the Mattapan Trolley Station, the Eliot Street Corridor along the Neponset River, East Milton Square, and Granite Avenue.
Opponents challenged the measure after the fact and collected enough signatures to force the plan to be subject to a town-wide vote. On February 14, Milton residents rejected the zoning plan by a vote of 5,115 to 4,346.
As in most affected communities, the issue denotes so much more than the need for more housing — a fact on which most people can agree but where the consensus often ends. Some residents don’t want new developments to change the character of the town. Increasing the housing stock by 25 percent, as the Milton proposal would have done, may be much too soon for some residents who bought their home based on the largely single-family housing stock that characterizes much of Milton.
Others complained that locating over 500 homes in East Milton Square will make the current bottleneck to get on the Southeast Expressway more time consuming and unbearable. For other residents, this comes down to an argument between the haves and have-nots. Many of the more affluent neighborhoods of Milton would be untouched by the new zoning, further burdening those areas with more modest houses and smaller lots.
So far, Milton has been the community to push back the most on the requirements of the MBTA Communities Act. Its rejection of the plan means that it will lose some state funding as a penalty for noncompliance. Future efforts may materialize to develop a more acceptable plan that satisfies enough residents to garner approval of a new zoning plan.
If that happens, the Milton experience could be an example of why local rule has such a stronghold in the Commonwealth. If that doesn’t happen, it could portend how local rule may serve as an obstacle to the state’s best-laid plans.
This week on The Learning Curve, guest co-hosts Alisha Searcy and Charlie Chieppo interview Mary Tamer, Executive Director of Democrats for Education Reform, Massachusetts. She focuses on the historic impact of the 1993 Massachusetts Education Reform Act on the commonwealth’s students’ high achievement on national and international measures. She explores the politics of the Massachusetts Teachers Association advocating against the MCAS test as a graduation requirement. In closing, Ms. Tamer also discusses the rise of teacher strikes and their implications for education reform in the Bay State.
Stories of the Week: Alisha talks about an article from The Hill on optional SAT scores; Charlie reviews a story from Anchorage Daily News on Alaska charter schools expanding.
Guest:
Mary Tamer is the Executive Director of Democrats for Education Reform Massachusetts. She is a longtime education advocate and Democratic activist who is a product of the Boston Public Schools (BPS), a former BPS parent, a former member of the Boston School Committee, and past president of the League of Women Voters of Boston. Prior to joining DFER, she worked for SchoolFacts Boston as the Education Research Director, and with the Massachusetts Charter Public School Association. Mary earned a B.A. in English and journalism for the University of New Hampshire, and an Ed.M. in Education Policy and Management from the Harvard University Graduate School of Education.
Tweet of the Week:
Click here to read a transcript
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 hubwonk@pioneerinstitute.org. 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.
Guest:
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.
Milton Shuts the Door
/in Blog, Blog: Economy, Economic Opportunity, Featured, Housing, Housing, Pioneer Research /by Eileen McAnnenyon Multifamily Housing Plans
The housing affordability crisis in Massachusetts is well known and well documented. According to the Warren Group’s January press release, 40,828 single-family homes sold in Massachusetts in 2023, a staggering 22.4 percent decline from the previous year and the lowest number of sales since 2011. Meanwhile, the year-end median single-family home price increased 2.6 percent to a record high of $570,000.
This combination of limited inventory and higher housing prices, against a backdrop of high interest rates, makes for a very challenging housing landscape. So challenging, in fact, that a growing number of young people are leaving Massachusetts, most likely in search of more affordable housing options.
A solution put forth by former Gov. Charlie Baker and adopted by current Gov. Maura Healey has been to build more housing. The MBTA Communities Act, passed in 2021, provides that the 177 communities serviced by the MBTA must create multifamily zones to spur housing development close to public transportation. This approach could alleviate the housing affordability crisis while also providing some congestion relief and advance the state closer to its climate goals.
All of this seems logical and straightforward enough, right? Think again. The issue is an emotionally charged one, with passions high on both sides.
The recent debate in Milton demonstrates why that is so. At issue is the zoning plan that had been approved by town meeting last December, which would allow for construction of almost 2,500 new multifamily units in six areas around town — including around the Mattapan Trolley Station, the Eliot Street Corridor along the Neponset River, East Milton Square, and Granite Avenue.
Opponents challenged the measure after the fact and collected enough signatures to force the plan to be subject to a town-wide vote. On February 14, Milton residents rejected the zoning plan by a vote of 5,115 to 4,346.
As in most affected communities, the issue denotes so much more than the need for more housing — a fact on which most people can agree but where the consensus often ends. Some residents don’t want new developments to change the character of the town. Increasing the housing stock by 25 percent, as the Milton proposal would have done, may be much too soon for some residents who bought their home based on the largely single-family housing stock that characterizes much of Milton.
Others complained that locating over 500 homes in East Milton Square will make the current bottleneck to get on the Southeast Expressway more time consuming and unbearable. For other residents, this comes down to an argument between the haves and have-nots. Many of the more affluent neighborhoods of Milton would be untouched by the new zoning, further burdening those areas with more modest houses and smaller lots.
So far, Milton has been the community to push back the most on the requirements of the MBTA Communities Act. Its rejection of the plan means that it will lose some state funding as a penalty for noncompliance. Future efforts may materialize to develop a more acceptable plan that satisfies enough residents to garner approval of a new zoning plan.
If that happens, the Milton experience could be an example of why local rule has such a stronghold in the Commonwealth. If that doesn’t happen, it could portend how local rule may serve as an obstacle to the state’s best-laid plans.
on Multifamily Housing Plans
DFER-MA’s Mary Tamer on MCAS & Teacher Strikes
/in Education, Featured, Learning Curve, News, Podcast /by Editorial StaffRead a transcript
The Learning Curve: Mary Tamer
[00:00:00] Alisha: Welcome back to The Learning Curve podcast. I am your co-host this week, Alisha Thomas Searcy, and joined by my good friend, Charlie Chieppo. Hey, Charlie.
[00:00:32] Charlie: Hey, Alishaia. It’s great to be co-hosting with you again.
[00:00:36] Alisha: As always, I always look forward to it. We’ve got a great show today, but of course we have to start with our Stories of the Week. Would you like to go first?
[00:00:46] Charlie: I’m happy to go first. You’re very kind. My story comes out of Alaska of all places. In response to a Harvard study that found that Alaska charter schools outperformed traditional public schools by more than in any other state, Alaska Governor Mike Dunleavy has said he’d veto any bill that just increases public education funding without also planning to establish more charters. So, me being the opinionated guy I am, I believe that the responses to him really shine a light on what, in my view, are many of the big problems with public education today. So, the pushback includes — and all of you who have any familiarity with charter schools will know all these well — well, the study had a very small sample size.
[00:01:36] Charlie: They complained that there’s no transportation provided to some of these charter schools. Remember, this is Alaska. These can be some very remote schools. Some don’t have kitchens and can’t provide free or reduced-price lunches. The students who attend the charters are likely not representative of the broader state population, and that these charters require a high level of parental commitment.
[00:02:00] Charlie: In my mind, here’s the deal. Alaska has among the nation’s lowest performing public schools. The average charter school student in Alaska scored an entire year of learning ahead of other Alaska public school students. And the study results were adjusted for race, ethnicity, and other demographic differences. So, the bottom line to me is, I mean, wouldn’t it make sense to maybe just provide charter students with transportation to these schools or provide funding? To build kitchens in the schools that don’t have them? I mean, instead of coming up with a million reasons not to do it and not to expand these schools that have been so successful, why not give more students a chance to attend schools that are so dramatically outperforming the other public schools in the state?
[00:02:52] Charlie: And again, remember, the bottom line here is that these are among the lowest-performing public schools in America that the [00:03:00] traditional public schools in Alaska. Look, I get it. Alaska deals with challenges that probably no other state does in case in terms of vast different distances, sparse population, and things like that. But anyway, that is my story this week.
[00:03:16] Alisha: and it makes sense and Charlie. I’m not sure why in education we like to have these false choices it’s possible that you can improve the traditional public schools right and make sure they have the resources they need as well as make sure the charter schools have the resources that they need, so at the end of the day all students are successful right regardless of the kind of public school they go to. How about that?
[00:03:38] Charlie: No, yeah, exactly. That is right. And look, you and I are both parents too. And I sometimes I just, I just find it astonishing sometimes that more people don’t have their hair on fire over what’s going on in a lot of, public education sometimes, but yes. It is what it is, you know.
[00:03:54] Alisha: It is what it is. Well, my, if my hair can be on fire, it certainly is for all of the things and speaking of being parents, Charlie, so I’ve found an interesting story from the hill. The days of optional SAT scores may be coming to an end.
Charlie: Yeah, I’ve been reading about this.
[00:04:17] Alisha: Yeah. And so it’s interesting to me and of course, very pressing because I have a high school junior. And of course, we’re having conversations now about SAT and college choices and all of that. And so I found this article to be interesting for a couple of reasons. Obviously, and I think people know that the reason that SAT scores um, even became optional initially because of COVID and students not having access to the test sites, right? And not being able to get there because of restrictions. And then I think there was a important conversation that was also brought forth around the equity of scores, you know, who has access to the resources.
[00:04:54] Alisha: Whether it’s to go to some sort of training or, you know, test prep course or [00:05:00] whether or not you have the ability and the resources to take multiple tests, you know, so you can get the best score, whether or not they are racially objective, all of those different things. And so, I think these are important conversations to have and, what my question about this article — and specifically it talks about how Dartmouth is announcing this week that they are going to be reinstating the requirement for SAT or ACT test scores — and so the idea here is they’re hoping that more colleges won’t come on board. And so, in my little research, I found that I think it’s about 1,400 schools currently across the country are either test optional or don’t require a test at all. And so, my question is whether or not enough research has been done, right? Enough studies have been done to really determine how important these test scores are. I know for me I didn’t have the highest SAT score, but it certainly was not a predictor of my ability in undergrad or graduate school for that matter. And so, I do think it’s just a small snapshot as any assessment would be.
[00:06:08] Alisha: We talk about the same thing in K-12 and it doesn’t give the whole picture of a student’s ability. At the same time, it does give you some information. But I think before colleges start moving back to automatically making these requirements, I think we ought to study this a little bit more and really get a sense of, you know, these graduating classes, the components of the classes that they’re now making up in these colleges that are test optional and just see what the impact has been and if it’s absolutely necessary.
[00:06:37] Charlie: Well, I have to tell you. Alisha, your observations really track with my experience. I actually spent almost eight years in college admissions reading those applications. And I had the same reaction, which is that, you know, I think there is a value to them. They certainly are not the entire picture. I think for me, sometimes where they did have a value, was sometimes you saw a student whose performance was very good and their scores were very, very low. And that’s one that sort of makes you wonder sometimes about, what the school’s like, you know, what the curriculum they’ve had has been like, and, basically that that school may not have been doing that student any favors, but I concur with your overall view on that one.
[00:07:19] Alisha: Well, thank you, and I didn’t know that you have that background, so we may be calling you for a little advice if that’s okay.
[00:07:25] Charlie: You certainly may. I understand that my experience was about a hundred years ago, but I’m happy to, help however I can.
[00:07:32] Alisha: Awesome. I’m learning that this whole thing is a science, so more to come.
[00:07:38] Charlie: Yeah, a more complicated science than it was when I was doing it.
[00:07:41] Alisha: I’m sure. Next up, our guest today is Mary Tamer. She’s the executive director of Democrats for Education Reform, Massachusetts.
[00:08:06] Alisha: Our next guest is Mary Tamer. She’s the Executive Director of Democrats for Education Reform, Massachusetts. She’s a longtime education advocate and Democratic activist who is a product of the Boston Public Schools. A former BPS parent, a former member of the Boston School Committee, and past president of the League of Women Voters of Boston. Prior to joining DFER, she worked for School Facts Boston as the Education Research Director and with the Massachusetts Charter Public School Association. Mary earned her Bachelor of Arts degree in English and journalism from the University of New Hampshire and an EDM in Education Policy and Management from the Harvard University Graduate School of Education.
[00:08:50] Charlie: Welcome, Mary Tamer. It’s great to have you here.
[00:08:53] Mary: Thank you so much, Charlie. I’m happy to be here.
[00:08:56] Charlie: As noted in your bio, you’re a graduate of Boston Latin and a former member of the Boston School Committee. Would you share with us some of your background, early educational experiences, and work on K-12 education policy in Boston?
[00:09:08] Mary: Yeah, absolutely, because I think it was because of my own time as a student in the public schools that really shaped so much of my worldview and why I work in education policy now. I am the proud granddaughter of immigrants from Syria on my mother’s side and Lebanon on my dad’s side. My mom actually was raised — both of my parents were raised in Arabic speaking households — and my mom was actually rejected from the Boston Public Schools when her parents tried to get her into the schools in Brighton because she didn’t speak enough English. And so, we didn’t have protections in place back then for English learners and I, you know, remember even as a child, my mom sharing the story with my sisters and I, because it was such an impactful moment in her life to be turned away from the school right down her street, which she had so looked forward to going to as a little girl. And so, I think that, you know, my own experience in the Boston Public Schools was a time of tremendous angst and discord. It was in the middle of desegregation. I felt extremely fortunate to start at a school that was right down the street from my grandparents to family house, which is where my family and I lived.
[00:10:23] Mary: And so, I started at the same elementary school my dad had gone to. And while I thrived in school, my older sister really struggled from elementary school on. And so, while my younger sister and I were fortunate to be accepted into an advanced work program, my older sister went to the Lewenberg, which was a middle school in Mattapan that had been in years of successive failure. It was ultimately closed. And then after the Lewenberg my sister went on to English High School. I was on the Latin School track and was extremely fortunate to go there. But at the time that I was having this incredible educational experience, my older sister was falling through the cracks of a high school where my dad was quite ill at the time and my parents really had their hands full with that. And my sister appeared to be going to school every day and in fact missed almost an entire month of school her freshman year, just in the first part of her freshman year. And yet not one adult in the building ever called my parents. And I think what that did for me as I got older and just saw — and my sister ultimately dropped out of school after her freshman year went to an alternative program that she also dropped out of and then passed away very young. And so, what I see all these decades later is that we still have far too many children, whether it’s in Boston, whether it’s in other districts, who fall through the cracks.
[00:11:55] Mary: And I know because my lens has been Boston for so long, since this is where I grew up, and this is what I call my home. Why we accept the fact that in a family of three that two of the kids did fine, but there was that one that didn’t and that we accept failure a little too easily. And we have for decades. And I think that is really what propels me to do the work that I do every day.
[00:12:21] Charlie: That’s great. You know, Mary, the first part of your story so resonated with me because my mom would always tell the story about how she didn’t graduate from high school until she was 20, because she came to the United States from Italy when she was nine and didn’t speak a word of English and they just put her in class until she figured it out, you know, so obviously it took a little time.
[00:12:57] Mary: Yeah, and I think the sad thing, Charlie, is when, you know, when you come from an immigrant family, I think at that time it was all about assimilation and, you know, my parents spoke Arabic fluently, and frankly used it as their secret language. So my sisters and I didn’t know what they were talking about. But what that also meant for me is that I missed out on having that second language in my life. And my older son is now fully fluent in Arabic and my jealousy over that knows no bounds, because we really do need to embrace bilingualism, multilingualism in this global world, this global economy that we all operate in. And so, I love that we’re in a place now where we really can for the most part, you know — I hope most of us do embrace multilingual and bilingual folks — because that is really such an incredible advantage to have.
[00:13:40] Charlie: Absolutely. I’m, in the same boat. I’m the youngest of four and I was the only one who didn’t grow up speaking Italian. So I desperately and fruitlessly for the most part trying to learn it now. Anyway, so, back to Massachusetts — the 1993 Massachusetts Education Reform Act included [00:14:00] a highly progressive state funding formula testing, MCAS we call it in Massachusetts, and standards, charter public schools, district accountability, all of which has been a historic success. Could you talk about the Education Reform Act’s national and international successes, how MCAS has been a keystone of the Bay State’s remarkable achievements in K-12 education.
[00:14:23] Mary: Yeah. You know, we just did our, our organization did a deep dive on, the 30th anniversary of the act last June. And it really was, I think, such an amazing experience for our staff to just take a look back and to, and to really have the opportunity to remark on, like, where was it incredibly successful? Where did we fall short? And where do we need to go next? And I think that \when you consider that prior to the act’s passage 30 years ago, that Massachusetts was somewhere in the middle of all the states in terms of our achievement levels — and until very recently, we’re still number one in a number of categories and I think number one overall in the country — but to think of how long Massachusetts has been number one when compared to all the states when it comes to educational outcomes. And now I always have to say we’re number one — there’s a caveat because we’re number one for some as my friends at Ed Trust wrote in really brilliant report that highlights the widespread disparities that we see between white students, Asian students and black and brown students, low-income students, our English learners and our students with disabilities.
[00:15:38] Mary: And so, we have to be honest about where the success is and where we still have a long way to go. But that being said, what the act did was we saw, you know, graduation rates go up dramatically. We saw dropout rates go down dramatically. We had, as you mentioned, MCAS, you know, starting in 1998, a new system of testing accountability. And that really has, I think, vastly improved what we knew to be happening prior to 1993, which was a real, I mean, just widespread disparity and discrepancies in terms of what a diploma meant. And I think the 1993 act really solidified not only Massachusetts’ standing in the country and in the world, frankly, because I mean, when you are looking at international testing and Massachusetts is coming, you know, second only to Singapore. Clearly this was a really dramatic, comprehensive step in the right direction when it came to our funding formulas, the creation of charter schools, and giving families a choice when it came to where they wanted to send their children to school.
[00:16:52] Mary: The way teachers are certified and the rigor of that process. Just so many good things, frankly, Charlie, and it’s really wild to think that it’s been 30 years since we’ve had any kind of education reform act of that magnitude here in Massachusetts.
[00:17:08] Charlie: Yeah, that’s right. You know, at Pioneer, we were lucky enough to have Tom Birmingham working with us for the last few years of his life until he passed away last year. And, you know, he was one of the co-authors of that and stories he would tell about, what he saw prior to 1993, which was obviously one of the things that was catalyst behind the act. Some of those stories were just unbelievable. As you say, there’s, more to do, but it’s certainly changed our world for the better, no doubt about that.
[00:17:35] Mary: It did, and it was a real bipartisan act too, which I think, you know, it’s important to mention that it was a Democratic Legislature and a Republican governor, Governor Weld. And like any good piece of policy, there’s a lot of negotiations at times there’s compromise, but this is a bill that really didn’t compromise when it came to putting students first.
[00:18:00] Charlie: Well put. I mean, it’s really, it’s quite amazing in retrospect.
[00:18:03] Mary: Yes. Completely agree. Yeah.
[00:18:06] Charlie: Well, looking at it sort of from a national perspective after decades of Democratic presidents like Bill Clinton, Barack Obama, numerous center-left state leaders across the country, supporting, testing charters and accountability. The teachers ‘unions are now clearly ascendant within the Democratic Party. Could you talk about the national political changes within the party on K-12 education policy?
[00:18:30] Mary: Yeah, absolutely. You know, what’s so interesting to me, Charlie, is how, just how much it varies wildly state by state, right? And like, when I look to the work that my colleagues are doing in Colorado at Democrats for Education Reform and Education Reform Now in Colorado, like they have made incredible gains and have been really ahead of the curve in terms of some of the education policy that they have passed in Colorado. There are other places. It’s interesting because even here in Massachusetts and I know we are considered to be a very blue state, I think a lot of people are unaware of the fact that 61 percent of our electorate are actually unenrolled voters since we don’t have an Independent party per se in Massachusetts, you’re either Republican, Democrat, or you’re unenrolled and 61 percent of our voters are unenrolled.
[00:19:21] Mary: And so, when we look at how the teachers’ union has done here in Massachusetts, especially when it comes to getting legislation passed, it frankly hasn’t been so great. It was just last week that one of their key bills that was part of a pretty extreme legislative platform that they put forward just over a year ago was to legalize teacher strikes here in Massachusetts. And as it turns out, that bill was put to study, which means it’s not going anywhere. And so, I think we see signs of — even in a state like our own — I think the power varies, right? And what they’re able to accomplish legislatively, I think, varies wildly as well. At the national level, you know, President Biden is not the ed reformer that President Obama was. He is married to, as we all know, he’s married to a union member who is a teacher. And so, I think that has at least from the perception, I believe, you know, it has been something that has been challenging in the ed reform space. Yet so much of what we are able to do does happen at the state level.
[00:20:40] Mary: And I know for the work that we’re doing here in Massachusetts, including you know, last week, our literacy bill was voted out of committee, which we are very happy about. And this is something that the teachers’ union has not been supporting. You know, when we look at the numbers, that less than 50 percent of elementary school [00:21:00] students are reading on grade level in Massachusetts and consider that statistic and knowing that we are number one in the country, I think it’s absolutely horrifying. And so, we need to really question why is the teachers’ union against moving to a research and evidence-based reading curriculum when we know that less than half of the kids in Massachusetts are reading on grade level? It’s an absolute mystery.
[00:21:26] Charlie: But it was encouraging to hear the governor oppose the bill that would have made teacher strikes legal and also to really highlight the literacy issue in her state of the state address.
[00:21:38] Mary: Yes, I completely agree. we were really uncertain, I think with Gov. Healey, as you know, coming into this role of governor as a long-time attorney general who really didn’t have to talk a lot about education. We’re so pleased to see that, given how poor the literacy outcomes are in Massachusetts, that she and Secretary Tutwiler have named this as their top priority as it should be, because if children aren’t learning how to read Charlie, what else are they going to be able to do in school? I mean, let’s be honest. It is the most important skill we can teach to our children at the earliest possible age in order for them to have a fighting chance in their educational careers.
[00:22:25] Charlie: No, that’s so true. So leading DFER Massachusetts, you’ve just assembled a diverse coalition of education reformers and advocates to push back against the Massachusetts Teachers Association and their statewide ballot effort to scrap MCAS as a high-stakes test. Would you talk about the MTA’s drive to undo MCAS as a central element of Massachusetts education reform?
[00:22:50] Mary: One of the things that became clear, Charlie, is through the pandemic and through our periods of school closures is we were hearing louder and louder calls for an end to testing, like frankly, any kind of standardized testing. And, you know, these calls were happening prior to the pandemic, but it seems that the MTA and others took an opportunity during a really, really terrible time for our kids and families, for our education systems, to seize an opportunity to say testing is really bad, we really shouldn’t do this. And so, the ballot question I think is step one in a longer-term goal to remove any kind of standardized testing and accountability from our schools. And I do think it’s a dangerous step forward. One of the things we know, especially looking at the data, and we have been moving in the wrong direction for a number of years, even prior to the pandemic. And so this is exactly what standardized testing allows us to see. And what MCAS allows us to see is we can compare student groups. We can compare by grade, by student category, you know, let’s look and see how English learners are doing against non-English learners. How are our students with disabilities doing? How are our black and brown students doing, our low-income students? And so, when we see the changes in these scores and when we see the scores going in the wrong direction, to all of a sudden say, we want to do away with this.
[00:24:34] Mary: You know, we have used the analogy of, when my boys were younger and weren’t feeling well, I would use a thermometer to take their temperature to determine like, do I just give them some, Tylenol? Do I need to take them to the pediatrician because their fever’s that high? You know, the thermometer didn’t tell me everything I needed to know, but it told me enough to make a determination of what my next step was going to be.
[00:24:58] Mary: And that’s exactly what MCAS is supposed to be doing in our classrooms and for our teachers and students. It’s supposed to give teachers a sense of where are my lessons resonating? And where did I miss the boat? Like if you as a teacher, see that the child missed an entire section of algebra, like they just didn’t get it. You know, the goal was to use that data as an opportunity for educators to fine-tune their practice to change lesson plans to find better methodologies, to make sure that that following year that you’re, eighth graders are going to be doing better in that section of algebra.
[00:25:38] Mary: And so, I feel that this narrative has been created about the harm of testing. And I think there is far more harm in trying to take away the one standard, the one statewide standard we have for students to graduate, Charlie. And what a lot of people don’t realize is if MCAS goes away, Massachusetts would be one of two states without a statewide standard for graduation, because we do not have curricular standards. We have Mass Core — is a set of recommendations, not requirements — and I think most people are unaware of that fact.
[00:26:17] Charlie: I think you’re absolutely right. Very good point.
[00:26:21] Alisha: Thank you, Mary. I’ve learned a lot listening to you and I, I love your passion.
[00:26:25] Mary: Thank you.
[00:26:26] Alisha: You’re welcome. And so someone who is outside of Massachusetts you know, trying to learn here, and for the rest of our listeners who may not know all of this — so, the MTA is a member entity that has 115,000 members that annually gathers approximately $65 million in largely dues-driven revenue, from my understanding. Can you talk about their political power in Massachusetts, particularly some of their key arguments against is it called the MCAS? And as a [00:27:00] graduation requirement and what pro MCAS advocates, parents and business leaders need to do to preserve this assessment as an objective statewide measure of student achievement?
[00:27:11] Mary: It’s such an important question, honestly, Alicia. And so, I think in terms of their political power, it really is in their resources, which are seemingly endless thanks to member dues. And in addition to the $65 million in annual revenue from member dues, there’s also, they have a number of real estate holdings and we know from past ballot questions that they’ve supported that they will, if needed, liquidate some of those real estate holdings in order to free up cash. And so, at any given time they have, you know, somewhere around $100 million at their disposal to use as they wish.
[00:27:53] Mary: And so, I think because of what I said earlier about their lack of success, legislatively, I believe that is why they know that their one opportunity is to pursue ballot questions, which frankly, it’s a terrible way to legislate. Because often the questions aren’t worded in the best possible way. I think people are not as aware of what the implications are. And I think to that point, you know, one of, I think, the most effective messages that the MTA has, circulated around the state and, when you have 116,000 members, it’s not so hard to do, but that, you know, we are teaching to the test all day. Like this is something that we hear this refrain over and over again, that I’m teaching to the test all day.
[00:28:41] Mary: there’s no room for art, music, you know, any of the other wonderful things that we would all want our children to have. And that is something that I think has taken hold with a lot of parents, with a lot of students. Now I am the mother of two, you know, they’re out of school and out of college now, but my both of my sons attended public school. And I can say with absolute certainty, they were not only getting math and English all day. They thankfully had language instruction. They had science, they had art, they had music, they even had gym on occasion. And so, I think one of the biggest. challenges that we face, and it’s not an insurmountable challenge, is letting people know where the truth lies.
[00:29:24] Mary: Like when you see the hours of testing that take place in Massachusetts on an annual basis, how much time actually is devoted to MCAS. Um, it’s actually nowhere near as bad as how it is portrayed. And so, there is such a significant divide between the narrative that is being shared by the MTA and the actual truth of what’s happening on the ground and in classrooms.
[00:29:49] Alisha: Makes sense. I want to talk about the [MTA] president, Max Page. And again, I’m an outsider, so this is just my perception, but it seems like many of the recent MTA efforts have been driven by Mr. Page, whose worldview can be considered controversial, let’s say. And so, can you talk about how Mr. Page has used some of his protest politics as the means to mobilize members and leverage the rhetoric to achieve his union’s political goals?
[00:30:17] Mary: Yeah, absolutely. I think we just saw a perfect illustration of this, just over a week or so ago when we saw the Newton Teachers Association go on strike for two weeks. And so, all students in Newton and 20 percent of the population is students with disabilities. They also have over 400 students METCO students from Boston. This is an integration program that’s been in place for decades. And so, it’s mostly students of color who are sent to suburban districts, including Newton. And so, 11 days out of school, and it got to a point where I think parents were really upset.
[00:30:57] Mary: I’ve talked to so many Newton parents. I had people calling me. What do we do? How do we mobilize? And I think that this is something under the Page leadership that strikes, I think this was number six in the last year and a half. It is illegal, you know, not only here in Massachusetts for public sector unions to strike, but in the majority of our states, it’s illegal for public sector unions to strike. And so, judges, you know, ultimately the school committee or the school administration will take the teachers union to court, try to get them to come back. Fines are levied, but what we’ve seen happen consistently with all six strikes is that people in the union are just scoffing at the fines. But I think when you’re sitting on $100 million and, you know, even in Newton, I believe it was reported in the Boston Globe that just the Newton Teachers Association alone was sitting on, I think, $1.2 million in their bank account. And they ended up, with, I think, $675,000 in fines for an 11-day strike.
[00:31:59] Mary: But the cost of the police alone, for example, to be present during these strikes — which were pretty loud and long outside of Newton City Hall — was over a million dollars. And so, there’s significant costs involved, not to mention the costs that you really can’t quantify in terms of what does it mean to a child on the autism spectrum when they haven’t had services for 11 — well, really, it’s 15 days when you consider the weekends — but to be out of school for over two weeks in the amount of dysregulation that that can lead to for a child. I think when we see the unbelievable suicide rates and mental health challenges that our youth are facing across the country, but here in Massachusetts as well, being in school and having that consistency, having those two meals a day for low-income students. Now, this is not a low-income area. But even areas like Newton have a percentage of low-income students who are reliant on school food in order to get two of their meals a day. To not take any of that into consideration, it’s just, I have to be honest. I do not think this is helping their cause.
[00:33:09] Mary: And even as we face this ballot question, what the Newton teachers did over this two-week period of time did not breed a lot of goodwill on their part. And sure, there were, parents that stood with them and supported them. But I would say at this point in time, there’s far more parents who are still seething with anger over what transpired in Newton, just a week and a half ago.
[00:33:32] Alisha: Wow. I think it’s so important that you highlight the impact that this has, you know, you understand workers want certain things, you know, people, as unions and others, right? Organize and mobilize themselves and they certainly deserve a voice. But when you think about the real impact that it has on students and families and municipalities, as you mentioned, just the cost of police protection, that’s really important to point out. So, thank you for that. The MTA’s endgame on illegal teacher strikes — and I say that because you just mentioned that striking is illegal under the law — seems to be using them as a contract negotiating tactic, but also seeking to perhaps overturn the state law prohibiting public-sector union strikes. So, on Beacon Hill and across the state, what are the other implications of these teacher strikes on the future of the K-12 education reform movement, if you will, in Massachusetts?
[00:34:28] Mary: Yeah, it’s an interesting question. I mean, really come back to, I do not think this is helping their cause. I do not think that this is generating or building goodwill toward what they’re trying to achieve. I work for an organization that puts students first, and I’m very proud of that. I do believe in collective bargaining agreements. I believe, you know, we live in a state where, we have so many unions that absolutely thrive here, but when it comes to striking, I don’t understand, when we have decades of history of settling collective bargaining agreements without striking, it is very clear to me that this is purely political. I think the fact that the state Legislature, as I mentioned earlier, has rejected their bill, which would legalize the right for the public-sector unions to strike here in Massachusetts that was outright rejected by a fully Democratic, you know, pretty much almost fully Democratic Legislature.
[00:35:36] Mary: And so that really speaks volumes. I mean, we’ve had our Secretary of Education, our governor, our Speaker of the House, I’ll say like this is not what should be happening and it certainly should not be happening. After three years of disrupted learning for our students and what that has brought, which is a mental health crisis of proportions that we’ve never seen before. Incredibly high suicidality rates among our children. To not consider the vulnerability of so many of our children for so many different reasons and to use them as pawns in a political battle is egregious to me, I truly don’t know how anyone could put their own needs ahead of the needs of children. When again, we have historically settled collective bargaining agreements on an annual basis for decades without strikes. Why all of a sudden under new leaderships are strikes so essential to settle these contracts?
[00:36:47] Mary: It is clear that it is under the leadership of someone who really wants to disrupt the norms here in Massachusetts, to put parents and families at such a clear disadvantage. And to frankly, threaten the future of our children and what they need and deserve from us as the grownups in the room. At the very least we can act like grownups and put the children first.
[00:37:16] Alisha: And we’re going to call that a mic drop moment. Thank you, Mary. Wow. Phenomenal. Thank you so much for being with us. Just well said again. Appreciate your passion and. the need for us to put kids first. So, thank you for the time today.
[00:37:34] Mary: My pleasure. So nice to meet you.
[00:37:36] Charlie: [00:38:00] That was a great interview. Mary Tamer’s long been one of my favorites. So, I really enjoyed that.
[00:38:10] Alisha: Learned a lot for sure.
[00:38:11] Charlie: As always. Exactly. Exactly. So the Tweet of the Week this week is from The74. And it is that according to the latest data from the Bureau of Labor Statistics, public K-12 schools added 160,000 jobs in 2023. And I’ll tell you, I think this is particularly an interesting issue to look at right now, given that, the federal funding that funded so many of those jobs is now going away. And so, I think that sort of keeping an eye on, public school finance is going to be very interesting in the weeks and months.
[00:38:44] Alisha: Yeah. And we keep hearing about this fiscal cliff that’s coming for schools and jobs are certainly connected to that.
[00:38:51] Charlie: So, no doubt about it. Well, Alisha, as always, it is an absolute pleasure to, get to do this together. So, thank you very much.
[00:38:58] Alisha: Absolutely, Charlie. Great to be on with [00:39:00] you.
[00:39:00] Charlie: And I’m glad to be your admissions consultant.
Alisha: Thank you very much. Very excited about that. Well, next week we’ve got professor Benjamin Smith. So, we were looking forward to that. He’s the professor of Latin American History at the University of Warwick in the UK and author of The Dope: The Real History of the Mexican Drug Trade. That’ll be interesting. I’m definitely going to tune into that one.
[00:39:25] Charlie: That sounds fascinating.
[00:39:27] Alisha: Indeed. See you next week.
This week on The Learning Curve, guest co-hosts Alisha Searcy and Charlie Chieppo interview Mary Tamer, Executive Director of Democrats for Education Reform, Massachusetts. She focuses on the historic impact of the 1993 Massachusetts Education Reform Act on the commonwealth’s students’ high achievement on national and international measures. She explores the politics of the Massachusetts Teachers Association advocating against the MCAS test as a graduation requirement. In closing, Ms. Tamer also discusses the rise of teacher strikes and their implications for education reform in the Bay State.
Stories of the Week: Alisha talks about an article from The Hill on optional SAT scores; Charlie reviews a story from Anchorage Daily News on Alaska charter schools expanding.
Guest:
Tweet of the Week:
https://x.com/The74/status/1756702886644289834?s=20
Baystate Budget Blues: Declining Revenue Causes Concern
/in Featured, News, Podcast Hubwonk /by Editorial StaffClick here to read a transcript
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 hubwonk@pioneerinstitute.org. 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.
Guest: