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If economy is humming, why does Mass. show a deficit?

Massachusetts unemployment is down.

State tax revenue is growing.

Cranes dot the metro Boston skyline.

So why does a state with an economy humming along face an urgent budget gap pegged at $765 million? Wouldn’t good economic times insulate the government from cuts now seen as imminent?

On one level, it’s basic. As Governor Charlie Baker explained in a Tuesday press conference: state spending is poised to grow by 7.3 percent this fiscal year, while tax revenue is set to increase only by about 4.4 percent.

“Spending seems to be the primary issue here,” Baker said.

Now add the nuance.

Specialists say the deficit results from pitfalls that have undercut revenue and demands that have slapped the state with higher than expected costs.

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Spending on Medicaid, the state-federal health program for poor and disabled people, is coming in much higher than expected, in part, due to the failure of the state health insurance website, the Baker administration says. Unbudgeted Medicaid costs are the biggest single spending-side issue contributing to the gap, according to the administration: $230 million.

Like most years, funding for certain programs, such as public defenders and emergency help for homeless families, is budgeted at a level that often requires supplemental money as the fiscal year unfolds, analysts said. Government employee and retiree health insurance was also underfunded and now requires an infusion of cash.

While overall tax revenue is about on target, money coming into the state from fines, fees, and the like is much lower than expected, crimping the bottom line to the tune of $179 million, the administration says.

And the budget relies on at least one volatile stream of income, tax-related settlements — such as those hashed out between the state and corporations. The administration estimates that gap alone to be $100 million.

Noah Berger, president of the liberal-leaning Massachusetts Budget and Policy Center, said that this year’s budget — as many budgets have in the past 15 or so years since voters backed big income tax cuts — relied on a lot of short-term solutions and “some wishful thinking,” which helps explain the deficit.

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One example of wishful thinking, he said: funding for public defenders.

He said providing lawyers for indigent defendants is not a political popular item, so it is often funded at a level that means it will need more money later in the fiscal year.

“That’s just the kind of strategy that means you end up with midyear deficits unless good things happen,” he said. What’s good? Tax revenue coming in above expectations.

The Baker administration cited a $35 million shortfall in funding for the Committee for Public Counsel Services — public defenders — in its outline of the gap this fiscal year, which runs from July 2014 through June.

State Representative Brian S. Dempsey, the House’s budget chief, said during the year certain accounts are always supplemented, and that’s to be expected.

Another area of wishful thinking, Berger said, is the Group Insurance Commission, which oversees health insurance for state and some municipal employees, retirees, and their dependents.

The commission issued a warning in May 2014, before the current budget was signed into law, that it would need at least $100 million more for the 2015 fiscal year than the governor and the House had proposed. The extra money was never added. This week, the Baker administration said commission spending represents a $155 million hole that needs to be filled.

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Berger believes that a longer-term reason behind this and other budget gaps in recent years are income tax cuts put into place more than a decade ago, undermining key state programs.

Other analysts say the state’s budget issues wouldn’t be solved by higher taxes, but rather a more efficient and effective government.

More contributing factors to the current gap cited by the administration include greater than budgeted caseloads at the troubled Department of Children and Families ($41 million) and underfunding for emergency assistance for homeless families ($45 million).

But the single biggest underbudgeted category cited by the administration in its outline of the gap is spending on Medicaid.

That spending includes paying for health care of people newly enrolled in Medicaid, who had previously been in a temporary Medicaid program instituted after the state’s health insurance website failed, the administration said.

The temporary program was instituted to make sure people would not lose coverage after the website — for people who do not get insurance through their employer — did not function after it was changed to comply with the federal health care overhaul.

The site was never able to determine whether people were eligible for assistance, more than 300,000 people were placed in the temporary program, and the cost associated with it has not yet been fully sorted out.

“Until we get our arms around what this temporary Medicaid issue looks like, we won’t really know the size of the problem and we could be in for even worse surprises,” said Jim Stergios, executive director of the conservative-leaning Pioneer Institute.

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The Baker administration’s $765 million gap figure takes into account $252 million in cuts and savings instituted by Governor Deval Patrick shortly before he left office.

At a broader level, this year’s budget is squeezed by tax revenues that, while going up fiscal year to fiscal year, are growing at a slower rate than in previous economic recoveries.

In the 1990s and again for much of the 2000s, annual state revenue growth averaged about 6.5 percent, according to an analysis from business-backed Massachusetts Taxpayers Foundation.

But since the middle of 2010, average tax revenue has grown about 4.7 percent each fiscal year, meaning the Legislature and governor have a pool of money that grows at a slower rate than in the boom years, stretching budgets.

“If we had really robust revenue growth on a great recovery, some of these problems disappear,” said Andrew C. Bagley, who directs research at the Taxpayers Foundation. “But we haven’t seen it.”

Related:

1/21: Governor Baker cites $765 million budget shortfall

1/10: Governor Baker puts freeze on state hiring

1/8: Baker is bracing to face a budgetary baptism of fire

12/17/14: Mass. shortfall is closer to $750m, tax group warns


Joshua Miller can be reached at joshua.miller@globe.com. Follow him on Twitter @jm_bos.