The End of Binge-spending Days
In 1981, I learned about cycles the hard way. I invested in Texas real estate when it was at an all-time high only to see values, and my investment, take a nosedive. This experience alerted me once again to the law of cycles: What is up will eventually come down, and what is down will go up.
When I took office, the Massachusetts economy was down. My team and I went to work to find ways to economize and to eliminate duplication and waste. We cut back on “nice to have” spending that we just couldn’t afford. We had our share of disagreements with the Legislature: the budgets I proposed did not cut school funding, for instance. But we were steadfast in avoiding new taxes. And, of course, our success in managing during the down years benefited from the state’s rainy day fund. Thanks to the courage and foresight of prior Republican governors and Democratic legislators like former speaker Tom Finneran, money saved during the good times helped to smooth out the bad.
Over the last three years, Massachusetts has come back. Businesses are hiring again, and we even read stories of employers creating incentives to retain older employees in the face of worker shortages. Our state and local tax revenues have gone through the roof. In fact, state tax receipts have exceeded forecasts by over a billion dollars for each of the last two years. A year ago, we refilled the rainy day fund.
Which brings us to today. When things are up, it’s easy to forget the law of cycles, and to spend like “up” is the only direction the economy will ever go. That’s just what happened in this year’s budget debate. On June 30, the Legislature passed a budget that spent not only all of the record tax revenues and all of the billion-dollar surplus, but also $500 million from the rainy day fund. The Legislature’s bet must be that if the Massachusetts economy keeps booming next year, no one will be the wiser. But there may already be signs that this is a bad bet: Tax revenues are below forecast for each of the last two months. And the law of cycles will not go away. Sooner or later, a downturn is inevitable. The spending spree will lead to deep cuts, big borrowing, a call for higher taxes, or all of the above. The fingers of blame will be pointed in many directions, but spending— runaway spending— will be the real culprit.
While we did address some of our critical infrastructure needs relating to state roads, bridges, and our system of public higher education, the budget included line item after line item of less-than-essential projects, such as merry-go-rounds and gazebos.
Every legislator and politician knows this spending can’t be justified, so why do they do it? Because it gets politicians praised — and re-elected. There’s no courage involved in spending more money. Drawing a line on spending is hard and fraught with criticism. When I vetoed $458 million of excessive spending in the budget this spring, I knew that community newspapers across the Commonwealth would decry my elimination of local pet projects. And, I knew that the Legislature would over ride most of my vetoes. In fact, they overrode all of them, to a chorus of community acclaim. But someone has to say “no.”
This year’s budget battle is history, but my concern is that the spending binge will continue unabated. Social service advocates always want more. Last month, I vetoed a bill mandating free pre-school for everyone, which would have cost over $1 billion a year. Government unions will want more. We have attempted to limit increases in state employee contracts to roughly 2 percent annually, unless there are significant concessions. But the unions will be expecting a more generous deal from the politicians they endorse in the fall elections — and if history is a guide, they’ll get it.
Yogi Berra famously said: “It’s déjà vu all over again.” He’d learned the lesson of cycles. We’ve seen cycles here in Massachusetts often enough to have learned as well. But we’ll need a hefty dose of courage from politicians and vigilance from citizens if we are going to be as well-prepared for the next inevitable downdraft as we were for the last one.
Mitt Romney is the governor of Massachusetts.