BOSTON — For years, the state has been quietly stashing away hundreds of millions of dollars in reserve funds to brace for an economic downturn.
Now, Beacon Hill leaders are looking to dip deep into that $3.5 billion “rainy day” fund to plug revenue shortfalls in a pandemic-ravaged budget.
Gov. Charlie Baker’s $45.5 billion budget plan calls for drawing down the reserves by about $1.35 billion.
A House version of the budget, which was being debated on Thursday, calls for a $1.55 billion withdrawal. The Senate’s budget, rolled out Thursday, would authorize a $1.5 billion draw-down.
Legislative leaders say tapping reserves will help balance the budget and forgo the need for wholesale tax hikes.
“We’ve spent years, through a lot of fiscal discipline, building up a healthy reserve fund,” Sen. Michael Rodrigues, chairman of the Senate Committee on Ways and Means, told reporters during a Thursday briefing. “It is raining out, literally and figuratively, and now is the time to use those funds.”
The state expects a steep drop in tax revenues in its current financial year, between $3 billion and $6 billion, due to a virus-related downturn.
Most economists are supportive of tapping the reserve fund, noting it’s meant for emergencies.
“It’s entirely legitimate to draw down on those funds, partially, to get through this crisis,” said David Tuerck, president of the conservative Beacon Hill Institute, which tracks the state budget. “Anything is better than raising taxes. Tax increases are a bad idea, but especially under these conditions.”
Baker has made rebuilding the reserve a key part of his agenda, by holding the line on tapping into the funds and making regular deposits. One of his first actions when taking office in 2014 was to stop a planned $140 million draw-down approved by his predecessor, Democrat Deval Patrick.
The state’s reserves directly affect its credit rating, which in turn influences how much the state pays in interest when it borrows money for projects.
In June 2017, S&P Global Ratings downgraded the state’s rating, for the first time in 30 years, citing a “failure to follow through on rebuilding its reserves.”
The Baker administration responded by making a sizable deposit into the reserve. At the time, the fund was about $1.2 billion.
Under state law, revenue from capital gains taxes on investment profits over a certain threshold are automatically deposited into the account.
Collectively, states began the previous budget year with a record $75.2 billion in rainy day funds, according to the Pew Charitable Trusts. At least 17 states drew on those funds in fiscal 2020 amid dramatic tax revenue shortfalls and increased spending demands.
Most of the withdrawals were small in proportion to reserve balances, according to the National Conference of State Legislatures. Some states — such as Nevada, Alaska and California — tapped sizable amounts to plug budget holes amid uncertainty over how long the coronavirus outbreak might last.
Christian M. Wade covers the Massachusetts Statehouse for The Eagle-Tribune and its sister newspapers and websites. Email him at firstname.lastname@example.org.