State tax pro offers dismal fiscal forecast at Lynn meeting

LYNN – Michael J. Widmer talks tough love when it comes to taxation and the state’s whopping fiscal deficits.As president of the Massachusetts Taxpayers Foundation since 1992 and the featured speaker at Wednesday’s annual meeting of the Lynn Business Partnership, Widmer painted a gloomy forecast for the state’s economy and overall employment picture.His opener: “How much bad news can I get into a small period?”Widmer projected the national economy will bottom out in the third or fourth quarter this year before conditions start to improve. The nation’s jobless rate will also increase, he said, explaining that the situation will reveal itself in Massachusetts somewhat later.”Massachusetts lags behind other states, but the unemployment rate here will continue to rise until the second quarter of next year, increasing from 8 to 9.5 percent,” he said. “But it will not be as bad as the 12 percent we saw in the late 1980s and early 1990s.”Unlike Massachusetts, states linked to the automobile industry or housing markets will be hardest hit, but the Bay State will not go unscathed.”In the past decade we never had any significant job growth,” Widmer said. “Anemic job growth in that period is what is bedeviling us in revenue.”In other words, with fewer jobs available, the state receives less income tax, which is why attention must be paid to business development, he said. Unfortunately, that won’t be easy because Massachusetts is a high-cost state.The numbers speak for themselves, he said. The state collected $21 billion in tax revenue in fiscal 2008 and only $18.4 billion in fiscal 2009. “It was the largest single-year drop in the state’s history since (World War II),” he said.Capital gains tax is also a key factor, he said, noting the state collected $300 million in 2002 and $2.1 billion in 2008 then saw the amount plummet to $500 million in 2009.Widmer, a former news reporter for United Press International with an undergraduate degree from Princeton and a doctorate from Harvard, held a variety of senior-level positions at Cabot Corporation between 1979 and 1990. He also served in the Gov. Francis W. Sargent administration as special assistant to the Secretary of Human Services and in the first Gov. Michael S. Dukakis administration as the governor’s director of communications and deputy chief secretary.According to Widmer, politicians are slow to react to economic problems – perhaps because they prefer not to recognize them since taking action would likely translate to making difficult budget cuts. But it would be wiser to make cuts earlier than later, he said.Although the state has received massive doses of federal aid during the previous and current fiscal years, those funds will be unable to cover the budget gap. As a result, Massachusetts can expect more cuts in fiscal 2011 and possibly a level-funded budget in fiscal 2012.”These are the sobering set of facts facing the state,” he said, noting that even with the upcoming sales tax increase, the budget gap will remain because the capital gains tax revenue is low.Among the major culprits wreaking havoc with the state’s finances are pensions and healthcare benefits for public employees, he said.Widmer singled out the Massachusetts Bay Transportation Authority as a prime example of excess, the agency providing its employees with one of the richest public benefits programs in existence. “These pensions and benefits are not affordable to local governments or to the MBTA,” he said, suggesting that municipal leaders be allowed to design employee healthcare plans outside of collective bargaining.”The question will be what to do about future pensions? It will bring to the surface whether they are affordable,” he said, clarifying that any changes in policy would not impact existing pensions. “There is the potential for tremendous savings here, in the millions of dollars per year.”Widmer said municipal leaders and taxpayers must understand a simple fact: “There is a direct relationship between