Lots of attention has been paid to Massachusetts’ unprecedented spending, made possible by once-in-a-lifetime federal largesse to pay for COVID-19-related needs. Behind the scenes, Massachusetts has also been saving.
The comptroller’s annual report for fiscal 2021, which ended June 30, reveals that Massachusetts’ stabilization fund is the largest it has ever been since the fund was established in 1986. The rainy day fund clocked in at $4.6 billion in fiscal 2021, a huge jump from $3.5 billion the prior year.
Until the last few years, the fund’s previous high was a little over $2 billion in the mid-2000s. But when the 2008 recession hit, Massachusetts had to draw down the money, and the fund only reached $2 billion again in fiscal 2018. It has been climbing ever since.
Massachusetts’ rainy day fund is now equivalent to 13.3 percent of state expenditures, higher than the 8.7 percent median across the United States. In absolute terms, Massachusetts’ savings account is the third largest in the country, according to the National Association of State Budget Officers.
The major reason for the jump last year was a state law that requires any capital gains taxes above a certain threshold to be deposited into the rainy day fund. With the stock market performing abnormally well last year, $1.098 billion was automatically deposited into the fund.
The size of the rainy day fund is particularly significant because no one would have predicted it back in the early days of the pandemic in the spring and fall of 2020. At that point, experts were predicting massive budget shortfalls, which would require withdrawing money from the rainy day fund. In September 2020, Gov. Charlie Baker said Massachusetts finished the fiscal year with a $700 million budget gap.
“The net difference between where we thought we were going to be and where we are is literally billions of dollars,” said Doug Howgate, executive vice president of the Massachusetts Taxpayers Foundation.
Howgate said early in the pandemic, policymakers were looking back at the 2008 recession and predicting another rainy day fund drawdown. There was also uncertainty about how long businesses would be closed.
Both Howgate and Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, said the main reason earlier predictions were so wrong was that no one was counting on such a large infusion of federal cash.
Horowitz said after the 2008 recession, there was a protracted downturn with not enough federal support, and experts expected the same thing to happen. However, the federal government this time injected substantially more money into the economy. That included personal stimulus checks, unemployment benefit hikes, business loans, reimbursements for COVID-related public health spending, and billions of dollars in direct government aid. All of that directly boosted state tax revenue and state government coffers, so the state never had to draw from the rainy day fund.
Having a substantial rainy day fund is important for several reasons. First, it makes the state appear more stable to ratings agencies, and a strong rating means the state can borrow money for building projects at lower rates. Second, it gives the state a cushion to fall back on in the next economic downturn. During recessions, people generally rely on government services more. Because states, unlike the federal government, are prohibited from running deficits, they need reserves to rely on.
Climate setback for Massachusetts: A Maine judge dealt a blow to a key Massachusetts climate change strategy by refusing to issue an injunction against a voter-approved law blocking construction of a transmission line carrying hydroelectricity from Quebec. The decision means the Massachusetts-financed power line is indefinitely on hold.
– It’s the second major setback for the Baker administration in its efforts to import hydroelectricity from Canada. An earlier bid in New Hampshire was shot down by regulators in 2018.
– The company building the power line argued the ballot question law was unconstitutional because it retroactively changed the rules – rules the company relied on in beginning construction and spending $450 million. But Judge Michael Duddy said some of the project’s permits were still in play and the company took a “calculated risk” when it began construction knowing the ballot question was in the works. Read more.
Bad timing: Demand for hospital services is rising even as hospitals are beginning to dismiss employees who refused to comply with a vaccine mandate. “We’re going through the worst staffing crisis in our history,” said Douglas Brown, the president of UMass Memorial Community Hospitals in Worcester. Read more.
Deal with Carmen’s Union: The MBTA’s largest union signs a new, two-year contract that provides annual 2.5 percent raises and more operational and hiring flexibility. To win a 2-year waiver of a work rule that was hindering construction work, the T paid each union member $2,500. Read more.
Why encampment must go: Judge Glock of the Cicero Institute and Charles Chieppo of the Pioneer Institute say the removal of the encampment at Mass. and Cass in Boston is long overdue. Read more.
FROM AROUND THE WEB
The new police reform law was supposed to make it easier to obtain public records from police departments, but a check reveals it’s still not easy. (Daily Hampshire Gazette)
The CDC is recommending that people get the Moderna or Pfizer vaccine, if available, and not the Johnson & Johnson immunization, because of very rare, but serious, clotting side-effects associated with the J&J shot. (Boston Herald)
The state’s ambitious contact tracing initiative is shutting down. (Boston Globe)
At a legislative hearing, health care experts urge policymakers to impose more COVID-related restrictions, like indoor mask mandates. (Salem News)
Saint Vincent Hospital has paid the city of Worcester $4 million for police details during the nurses’ strike, which is approaching 300 days. (MassLive)
Attorney General Maura Healey is widely expected to run for governor, but she faces little political downside in waiting to make her announcement. (GBH)
Aggregate Industries sues the town of Swampscott and its Select Board, alleging bias in negotiations over permits to continue work at its quarry in town. Town officials say new restrictions on the excavation work are necessary. (Daily Item)
Kimberly Roy, one of the new cannabis control commissioners, said her prior work with incarcerated people impacts her work on the cannabis commission. (Telegram & Gazette)
School officials are concerned about a nationwide trend of students posting threats of school violence on social media, targeting December 17. (Telegram & Gazette)
State officials are weighing whether to allow a new charter school, focused on enrolling kids in early college classes, to open in Fall River or New Bedford. The decision is bringing up the perennial debate about whether a new charter school will provide more educational opportunities – or siphon resources away from public schools. (Herald News)
A proposal to convert Charlestown High School to an innovation school, a status that would give it more autonomy from the district, is drawing pushback from some who charge that it’s a move to “gentrify” the school, where only 5 percent of students are white. (Boston Herald)
A federal judge rejected Oxycontin maker Purdue Pharma’s bankruptcy settlement, ruling the agreement cannot be used to protect members of the Sackler family that owns the company from facing litigation. (Associated Press)
The Boston Police Department secretly bought a cell site simulator, a device that permits surreptitious tracking of cell phone users in an area, using $677,000 obtained from civil asset forfeitures. (WBUR)
All state troopers are issued body cameras, part of the reforms instituted after the overtime scandal. (Associated Press)
Renée Loth points to the glimmers of hope from various initiatives for the country’s beleaguered newspaper sector. (Boston Globe)