Thank you Chairman Michlewitz, Chairman Rodrigues and Secretary Heffernan for the invitation to participate in this 2nd economic roundtable to discuss the continuing fiscal implications of the coronavirus (COVID-19) pandemic on the Commonwealth of Massachusetts.
MassBudget is a leading think tank advancing equitable policy solutions that create an inclusive, thriving Commonwealth.
THERE IS DANGER AHEAD as we move into the next several years. The public goods we rely on for our health care, to educate our young people, to house people, to ensure we have clean air and water, to support people when they need it most, and more — may be in great jeopardy.
We’re clearly in a budget crisis. Which is extremely troubling at this time, when we need real, comprehensive relief for families and individuals — so many of our neighbors, young and old, are struggling with accessing basic necessities and keeping healthy and well.
Our Commonwealth’s budget – how we raise revenue through taxes and fees, and how we spend that revenue – is the clearest picture of our shared values. Considering the revenue side picture is crucial, but the other side of the ledger is just, if not more important.
As you are keenly aware, the state budget is one of the most consequential pieces of legislation passed in the State House. Every year, tens of billions of dollars are allocated to invest in helping people.
These equitable investments are critical, especially at times of extreme hardship. We need to:
- Invest in policies and programs that bring collective well-being and joy.
- Divest from what’s harming communities.
We need an antiracist budget that invests in communities that have been ignored and intentionally harmed for far too long, especially during economic downturns like what we are currently experiencing.
This pandemic has shown how little cushion many of our communities have to weather this crisis. Even before the pandemic, Massachusetts had vast divides — divides that fall along the lines of race and class. For a state with vast riches and access to world class educational, medical and other resources, these incredible advantages are not equitably shared or enjoyed.
The Legislature and the Governor have acknowledged this and were making significant strides with the transportation funding bill and the passage of the Student Opportunity Act. Both would have made significant investments in our public goods. We’re at a much different place today.
While it may seem that our economy is improving slightly, things are mostly getting better for those at the top and some in the middle and deteriorating for those at the bottom.
I’ll spend my time today, outlining the severity of the overall economic and budgetary situation in our state and offer several policy solutions.
We can only begin to get our economy and society back on track by making sure that systems are in place to ensure that everyone has the basics (food, shelter, medical care) for themselves and their families.
Currently in Massachusetts we are seeing:
- 383,000 households in Massachusetts reported not having enough food in the past 7 days
- 850,000 people on SNAP — that’s 1 in 9 Massachusetts residents (a sharp COVID increase)
- Hundreds of thousands of people (226,000) did not pay last month’s rent on time or deferred the payment.
- The Commonwealth’s 11.3 percent unemployment rate means 1 in 9 workers are unable to find work — this impacts their families and communities.
- There are far more pronounced job losses in many Gateway cities with large populations of people of color. Lawrence, for instance, has a 23 percent unemployment rate compared to a wealthy, white community like Wellesley which has a 6 percent unemployment rate.
These are glaring inequities that an antiracist state budget could play a role in reversing, by:
- Providing direct cash payments to those who need it, regardless of immigration status,
- Expanding paid sick days,
- Extending unemployment benefits to everyone in our state who needs them, regardless of immigration status,
- Ensuring schools have the funding to support their students, especially in our districts hit hardest by the virus,
- Providing housing supports to households at risk of being evicted and to small landlords, and,
- Making sure people have enough support to feed themselves and their families.
The choice in front of us is simple: We can choose to balance the budget through harmful cuts or we can raise revenue and strategically use our rainy day funds to expand and extend these supports.
These choices are not equal. Budget cuts will harm families and their communities.
We have been waiting for more federal relief. Though with the instability and uncertainty happening on the federal level, we can’t afford to wait any longer. People’s health and lives are at stake.
Additionally, 91 Massachusetts economists noted in a letter to state leadership that when private spending falls during a recession, cutting public spending only prolongs and deepens the recession. Instead, by raising taxes, particularly from wealthy individuals and the corporations that have been least affected by — and have even benefitted from — the pandemic, we can avoid harmful budget cuts and keep money flowing in our local economies. Focusing additional taxes on higher income filers, they explain, minimizes potential diversion of private spending because higher income filers spend a smaller portion of their income that do lower and middle-income filers.
In other words, raising revenue and strengthening our economy are not policies at odds with each other. These are two sides of the same coin. We must raise new revenue in order to protect and repair our economy.
There is a lesson we can learn from one of our neighboring states. A week ago, New Jersey signed a Fiscal Year (FY) 2021 budget into law by addressing its revenue shortfall through tax increases on the state’s highest-income residents and wealthiest corporations. This ensures that their state will maintain investments in key programs and services that will help New Jersey recover from the pandemic.
The testimony I provided at the last roundtable looked at how the Commonwealth’s revenues have performed in recent past recessions. The short answer to that question is “not well.” Still, this is a very unusual recession.
While some recent revenue figures have been encouraging — for example, the relatively good revenue collections we have seen during the first quarter of this fiscal year. Other signs are very concerning. Unemployment, as I mentioned, remains shockingly high and COVID infection rates are on the rise again, nationally and here in Massachusetts.
Here are some important facts to keep in mind as we consider the budget, and revenue needs for this year:
- While revenue collections have done better than originally thought, there are many concerning signs that point to a possible, continued downward turn in our economy:
- The federal CARES Act helped to boost the economy. Now with the $600/week in enhanced unemployment relief having ended, this additional income is no longer available to circulate through the economy. The $300/week in benefit supplements that President Trump diverted from FEMA has also ended.
- In late December, other important federal unemployment benefits that have helped buoy the economy will expire. On top of that, next year the Commonwealth will have to start paying back our Unemployment Insurance debt with interest.
- The latest August employment figures show almost 400,000 fewer people working in Massachuestts than the previous August. Losing the entire working population of 17 Massachusetts house districts.
- While September unemployment numbers for the state have not yet been released, the Census Bureau’s experimental pandemic “Pulse Survey” from early September shows that a quarter of Massachusetts adults “expect someone in their household to have a loss in employment income in the next 4 weeks.” These grim expectations are not shared equally. It is only 12 percent for households with annual incomes over $200,000 and over 40 percent for Black and Latinx households.
- Likewise, joblessness hit hardest in industries where people of color often work. For instance, 1 in 3 jobs in leisure and hospitality were still gone by August when compared to the previous August. This August the two industries with the greatest increase in unemployment claims over the previous year were: accommodation and food service and health care and social assistance — both of which had a disproportionate percentage of employees of color and Latinx workers. These are jobs that will be difficult to fully bring back until we have the virus under control.
Given this uncertainty, we think it prudent to plan for several years of revenue shortfalls of at least several billion dollars annually.
Despite meaningful federal funds that have already come to the state from COVID relief legislation, most can only support specific pandemic-related expenses and are not available to help balance the budget and fill revenue gaps.
This fall, MassBudget is hosting a series of community conversations, called Envisioning Equity, on how the state budget and progressive revenue can build a strong, just recovery.
Here are some of the needs expressed at these forums:
- Our K-12 public schools, particularly those educating low-income students and students of color are facing many needs. Meanwhile, nearly $200 million in funding that the Governor recommended in his FY 2021 budget for K-12 schools has been held back because of the recession. There is CARES Act funding for COVID-related expenses, but this is one-time funding and it does not address the long-term investments needed in our lowest-income school districts. Many of our low-income schools and students:
- Do not have access to computers and adequate broadband to log into online classes. This lack of access also exists in rural parts of the state without adequate internet access at all.
- Need money for protective equipment and cleaning supplies to keep students and teachers safe.
- Need for additional support for students with special needs so they can learn, and more.
- Many low-income renters and homeowners will also need assistance when the eviction moratorium ends in ten days. Our panelists strongly expressed the housing emergency they are seeing in many parts of the state.
- It could cost the state hundreds of millions of dollars to keep families, who are struggling to stay housed because of COVID, from being evicted.
- The Metropolitan Area Planning Council estimates that 178,000 households may have difficulty paying their back rent or mortgage payments and could need almost $200 million each month in aggregate assistance if they are to remain housed.
- The National Low income housing Coalition estimates that as many as 300,000 households in Massachusetts are at risk of eviction.
NOW IS NOT THE TIME FOR AUSTERITY. Communities have been suffering for quite some time because of a deep legacy of racist policies.
What are some equitable progressive revenue changes that can address budget gaps for FY 2021 and beyond?
- Restore the tax rates applied to corporate income to pre-2010 levels (8.0% to 9.5%): This will raise approximately $375 – 500 million each year.
- Recouple the Massachusetts tax code to the federal Global Intangible Low-Taxed Income (GILTI) provision: Uncertain, but based on our work with national experts on this issue, we think it likely this could raise over $200 million each year.
- Raise tax rates applied to unearned income: Each 1 percentage point increase in the rates applied to long-term capital gains, and dividend and interest income would generate (together) approximately $400 million each year during periods of strong economic growth and/or strong stock market performance. If we were to adopt an exemption for seniors, it would reduce somewhat the size of the net revenue gain.
- Eliminate or delay the charitable deduction tax break: This is a very regressive tax break that the Department of Revenue (DOR) has estimated will cost the Commonwealth $300 million each year.
- Eliminate single sales factor apportionment (SSF) for mutual fund service providers: The savings to be had from eliminating SSF for mutual funds is somewhat unclear. Based on historical data from DOR, MassBudget estimates that elimination of SSF for mutual fund companies could save roughly $180 million in FY 2021.
It is through our state budget, and the revenue we raise, that we can best help our neighbors hardest hit by this health and economic crisis — while building a strong recovery that is racially and economically just.
I believe that we can reverse these trends, but it’ll take swift, well-informed, equitable action that is on scale here on the state level.