The other Deflategate: our state budget

Footballs aren’t the only things that need to be filled up in Massachusetts. Our state budget does too. Not only is there a surprise $765 million hole this year, new estimates suggest that the deficit next year may exceed $1 billion.

This shouldn’t be happening. When the economy is growing — as it has in recent months — the state should be taking in enough money to cover expenses and also fill up the “rainy day” fund. Instead we’re falling further behind. You can blame growing health care costs or the long-term effect of old tax cuts, but more fundamentally there seems to be a real imbalance between what we’ve decided to do through state government and what we can afford with current tax rates.

What’s going on this year?

Soon after taking office, Governor Baker initiated a thorough review of state spending, and he found a $765 million gap in this year’s budget, caused chiefly by two things:

• We spent more on health care than expected. This includes the money used to finally fix the website for the state’s Health Connector (our portal to Obamacare), and another big chunk to cover health care coverage for state employees.

• There weren’t as many large tax settlements. In recent years, the state had been taking in hundreds of millions of dollars from audits and tax settlements, so state officials assumed the same would happen this year, but it didn’t. A change in the corporate tax code has started to make those kinds of settlements less common.

Despite comments from the governor, there’s little reason to think that the problem is purely about spending. The increase in state spending from last year to this year was 5-6 percent (once you take out federal money). That’s enough to explain about half of the current shortfall.

Will this problem continue next year?

Unfortunately yes. Deficits, like diseases, can be inherited. And the Massachusetts Budget and Policy Center released a report this week suggesting that next year the state will face a shortfall of around $1.1 billion.

Unlike the federal government, the state has to balance its budget every year (it’s in the state Constitution.) So one way or another, we are going to have to fill that gap.

How long has this been going on?

Massachusetts has been living with deficits since before the Great Recession even began. The 2008 budget (approved five months before the recession struck) included an $800 million deficit, and since then the deficit has reached into the billions and never fallen below $500 million.

Why has the state faced persistent deficits?

Simply put, Massachusetts keeps running up deficits because our spending priorities don’t match up with our current tax policy. The state just doesn’t take in enough money to pay for all the things we do through state government — whether it’s schools, roads, subways, police, or elder care.

For years now, state spending has been growing at about the same rate as the state economy, which is more or less what you’d expect over the long term.

But it’s also true that some spending has grown much faster than others. In particular, health care costs have been going up, while everything else has been going down.

State taxes dropped substantially after the tax cuts of 1998-2003, and they haven’t recovered since.

What can be done?

Because the governor has ruled out any tax increases, this year’s deficit will most likely be addressed with cuts and limited withdrawals from the rainy day fund.

To forge a more lasting solution, it would help to get health care costs under control — and there are signs that this is already happening all across the country. There are efforts, too, to step up the fight against waste, fraud, and abuse.

Alternatively, if residents and legislators want to maintain existing programs, or make new investments in things like universal pre-K, they may need to consider tax increases.

Otherwise, if we can’t reconcile our spending commitments with our willingness to pay taxes, we may be fighting deficits for years to come.