Add a Recession to Existing Fiscal Threats and Gov Race Gets Interesting

Friday, December 22, 2017

There’s no way Governor Charlie Baker can be beat next year, right?

He remains the most popular governor in the U.S., according to the latest quarterly survey by Morning Consult.
By wide margins, he outpolls each of the three candidates now in the race for the Democrat nomination for governor: Jay Gonzalez, Robert Massie and Setti Warren.

And the Massachusetts economy continues to hum.  Just this week, for example, we learned that the unemployment rate here has dropped to 3.6 percent.
“Year-to-date, the jobs and labor force estimates indicate a strong and stable economy in the Commonwealth,” said Rosalin Acosta, the state’s Secretary of Labor and Workforce Development.

Yup, Baker’s sitting pretty and it’s hard to see how things could turn ugly for him.
Unless you happen to read the latest [December 6] forecast from the Massachusetts Taxpayers Foundation.  The title says it all: “MTF Forecast: Foundation Advises Beacon Hill – ‘Batten Down the Hatches’.” 

The forecast is eight-and-half pages and has some helpful, easy-to-understand charts.  If you want to check it out, click on the link at the bottom of this post. 
Here’s my stab at a highly condensed overview:

The economy remains robust and the state budget seems safely in balance. However, federal tax reform legislation will have a huge and uncertain impact on a blue state like Massachusetts; the state could lose $650 million in revenue in FY 19 (July 1, 2018-June 30, 2019) if voters approve a statewide ballot question next year reducing the sales tax from 6.25% to 5%; and if voters approve another ballot question, on paid family and medical leaves of absence, there would be an additional $150-million revenue loss because of reduced taxes, state program administration costs, and participation costs to the state for its employees.
The “only sound course,” MTF President Eileen McAnneny warned, “is a return to fiscal discipline that limits state spending growth, delivers needed reforms and savings in MassHealth, and deposits all excess capital gains and corporate tax settlements into the rainy day fund.”

The forecast did not overlook the largest elephant in the room: a national economic expansion that is now on borrowed time. “...there has not been a significant external shock or economic downturn since the last recession,” it noted.

Think about that. The economy began recovering from The Great Recession in 2009 and has been growing without interruption ever since: eight years without a recession.  A recession is inevitable.  We just don’t know when.
If the economy were to stall in the second quarter of calendar 2018, if the aforementioned fiscal threats were to materialize in full, and if the Baker administration were compelled in response to propose cuts in MassHealth, which ensures one out of four citizens and accounts for 41% to 42% of the entire state budget, the governor’s popularity could plummet.  Just as suddenly, the popularity of Setti Warren, a Navy intelligence specialist during the Iraq war, a proven executive as Mayor of Newton [2010-16], and an unabashed liberal, could rise.  (Polls indicate Warren is way ahead of both Massie and Gonzalez.)

This talk about an unbeatable Charlie Baker is really just talk.  I don’t think our governor is buying it, either.


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