A massive $750 million shortfall, larger than previously estimated, will confront Governor-elect Charlie Baker when he takes office next month, potentially forcing him to make unpopular cuts as he begins his term, according to the Massachusetts Taxpayers Foundation.
“He faces a huge fiscal challenge that is more daunting than anything we have seen in an economic recovery in a long time,” said Michael J. Widmer, president of the business-backed group, which has an established presence on Beacon Hill.
The estimate, which advocacy groups on both sides of the political spectrum said was potentially in range, was vigorously disputed by aides to Governor Deval Patrick.
Widmer’s projection takes into account the $250 million in savings and cuts Patrick has already made to state spending in recent weeks, meaning Widmer’s total estimate of the budget gap is$1 billion.
A discrepancy of the size estimated by Widmer’s group could represent a blow to the legacy of the outgoing governor, who has prided himself on guiding the state ably through the recession during his eight-year tenure, and it could limit Baker’s flexibility as he starts his tenure.
Glen Shor, Patrick’s budget chief, blasted Widmer’s projection, saying it “is incorrect, it’s inflated . . . misleading” and based on assumptions from limited data. Further, Shor said, it fails to take into account likely boosts to this year’s budget, such as leftover money that agencies give back to the state’s general fund at the end of the year.
Last month, Shor announced a much smaller shortfall, pegged by the administration at $329 million of the state’s more than $36 billion budget, which runs from July through June.
In addition to identifying $250 million in cuts and savings, Patrick sent a bill to the Legislature that would close what the administration says is the rest of the currently anticipated gap, about $80 million. The Legislature has indicated, however, that it is unlikely to take action on Patrick’s plan, thereby leaving the problem to be solved when the new governor takes office.
In an interview, Baker said that he was surprised by Widmer’s “big number” and that he does not know how much the shortfall will actually be.
He declined to discuss specifics of how he might address any budget gap until he takes office, but he reiterated pledges not to raise taxes or cut aid to cities and towns.
He also ruled out taking money from the state’s stabilization fund. That “rainy day’’ account stands at about $1.2 billion and is considered an important metric by the bond-rating agencies that assess the state’s financial health. Baker underscored that any withdrawal from the fund would have an impact on the next year’s budget. But Baker added that everything else “is going to have to be on the table.”
The governor-elect noted that part of the anticipated budget gap is the result of an automatic cut of the state’s income tax from 5.2 percent to 5.15 percent, which takes effect in January, triggered by growth in state tax revenues exceeding certain benchmarks
“What this really says is the Commonwealth has a spending problem that we need to deal with,” Baker said.
A former state budget chief, Baker described himself during his successful gubernatorial campaign as “a guy who is pretty facile with math.’’ He said Tuesday that whatever its actual size, the gap is a “challenging exercise to be sure, but it’s not impossible” to solve.
‘What this really says is the Commonwealth has a spending problem that we need to deal with.’ --CHARLIE BAKER, Governor-elect
So where might Baker be able to make cuts?
Widmer, in an interview at the Taxpayer Foundation headquarters on Washington Street, let out a whistle.
“It’s really tough,” said Widmer, who is soon leaving his post after more than 20 years.
Much of the state budget is dedicated to what are considered nondiscretionary costs.
The Widmer-projected gap of $750 million is based on less-than-expected tax and fee collections and higher-than-anticipated spending, on items such as insurance for state and municipal employees and emergency aid for poor people.
It also includes $106 million in estimated spending unaccounted for in the budget, related to mopping up the state’s bungled health insurance website.
In addition, the $750 million figure includes estimates of how much more money the state will have to pay for the health care services of people who were enrolled in a temporary Medicaid program.
That program was instituted after the state’s health insurance website — for people who do not get insurance through their employer — failed last year after it was changed to comply with the federal health care overhaul.
To make sure people would not lose coverage, Massachusetts placed hundreds of thousands who sought assistance in a temporary, almost all-expenses-paid Medicaid program.
Shor, Patrick’s budget chief, and Emme Schultz, a top state budget official, disputed almost every line of the Taxpayers Foundation analysis.
They said that Widmer’s analysis was based on a mix of incorrect and very incomplete data and that projections were concocted with too little information.
For example, the decline in the state’s tax revenues, which accounts for $43 million of Widmer’s projected shortfall, is calculated just through November although there are seven other months in the fiscal year. And data on how much the temporary Medicaid program will cost the state are incomplete.
Shor and Schultz emphasized that just because something is costing more than expected does not automatically equal a budget gap: Agencies can sometimes reallocate resources within their specific budget. And everything that is budgeted is not always spent.
Schultz underscored that the analysis did not include reversions, the money that is budgeted but not used and then given back to the state’s general fund.
“There are just some things we plain-out disagree with,” Shor said.
“It only shows downsides, some overstated, some incorrect, and some we would acknowledge — without offsetting against it some potential upsides,” he said.
But Jim Stergios, executive director of the conservative-leaning Pioneer Institute, said Widmer’s analysis is “absolutely” in range of what is a reasonable estimate.
Noah Berger, the president of the liberal-leaning Massachusetts Budget and Policy Center, said he believed there was definitely a budget gap beyond the $329 million the Patrick administration has acknowledged. But he said he did not have all the information he needed to make a final analysis of Widmer’s projection.
Berger added there are also expected and potential boosts to the budget that would make a gap smaller, perhaps significantly so.
“I don’t have data to estimate the Medicaid shortfall,” he said. Still, “if the Medicaid numbers are accurate, then this is in the ballpark.”Joshua Miller can be reached at firstname.lastname@example.org. Follow him on Twitter @jm_bos.