By Andy Metzger and Michael Norton
State House News Service
BOSTON -- Gov. Deval Patrick on Friday signed a law repealing a new technology tax and stripping $161 million in anticipated revenues from the annual budget, a move that lawmakers last week said would rip a hole in the state's $34 billion state budget.
However, Patrick's chief budget writer on Monday rejected the notion that the budget is out of balance.
"Taking a snapshot of one day of the budget is not how budgeting works," Secretary of Administration and Finance Glen Shor told the News Service. "The budget constantly moves. There are developments over the course of the year. We monitor very carefully. We actively manage the budget, and we have a track record of ensuring that the budget is always in balance, and that's the law.
During debate on the repeal bill, Sen. Patricia Jehlen, D-Somerville, lamented what she described as an over-reliance on tax cuts and spending reductions to address state budget problems over the years.
"The transportation bill opened a hole in the general budget and this (tech) tax plugged that hole," Jehlen said. "We are removing that plug. We are reopening that hole in the budget. We are justified in that decision, but the hole is now open."
Jehlen identified substance abuse, mental health, public health, early education and unrestricted local aid as areas of the budget that have not recovered from cuts over the past five years.
Last November, the Patrick administration concluded that tax-collection levels didn't satisfy economic-growth requirements to trigger a reduction in the income tax on Jan. 1, 2013, to 5.2 percent from 5.25 percent. But Jehlen warned last week that the 5.2 percent rate could be triggered on Jan. 1, 2014.
"We are on track for another tax decrease in January," said Jehlen, noting the loss of tech-tax revenues together with an income-tax cut would together pull $230 million out of the state's revenue stream.
"Eliminating this tax plus the automatic (income-tax) cut means another $230 million we won't have next year, and we will have to make further cuts," Jehlen said. "I think we should stop ratcheting down."
The Patrick administration, which is sitting on a state rainy-day fund with a projected fiscal 2014 year-end balance of $1.37 billion, will make a determination on the income-tax cut later this year.
Sen. Sonia Chang-Diaz, a Jamaica Plain Democrat, said repealing the tech tax was the "correct action," but said that "by doing so, we are, in fact, failing at least to stop digging ourselves into a hole, and perhaps even digging ourselves in further. And that hole, as folks have said, is $150 million, $160 million big."
She said the usual response to a budget hole is "either figure out how you're going to fill in that hole or what else you're going to cut."
Republicans, who had objected to a $500 million bill tax package that had included the tech tax, had argued in the spring that the state's revenue outlook was rosier than the consensus revenue estimate agreed to last winter. Recent tax collections appear to support that line of thinking.
According to Senate Minority Leader Bruce Tarr, state spending grew at almost twice the rate of personal income between 2005 and 2011, and more than three times faster than gross domestic product.
State tax collections over the first two months of fiscal 2014 -- July and August -- are running $139 million above budget benchmarks. Collection levels in September, a comparatively big month for receipts, are due out later this week.
Patrick last month initially argued for repealing the tech tax while replacing the foregone revenue.
"I hope I don't have to do that," Patrick said on Sept. 11, when asked whether he would sign a repeal bill without replaced revenues.
On Friday, Patrick signed the repeal, putting an end to the controversial tax, which was on the books about two months, with replacement revenue seen as an open question.
After repealing the controversial tax, Senate President Therese Murray and Senate Ways and Means Chairman Stephen Brewer voiced optimism and said they would look to the first-quarter state revenues when considering how to balance the budget.
"We're over benchmark for year to date, so we will have the revenue," Murray said.
In a brief phone interview Friday, Shor avoided specifics on how the state would manage a budget without the $161 million tax and was emphatic in saying the budget is not out of balance.
Asked if the state was using spending controls to address the decreased revenue, Shor said, "You're jumping way ahead."
Last fiscal year, the Patrick administration limited hiring and eventually made spending cuts in light of the lower-than-expected revenues, which bounced back to exceed estimates in the second half of the fiscal year.
Just ahead of the Oct. 15, 2012, date for certifying state revenues, former Secretary of Administration and Finance Jay Gonzalez said, "There isn't anything about the collections to date that leads me to conclude we're going to be decreasing the revenue projections for the rest of the year."
In December 2012, as revenues continued to underwhelm, Gonzalez readjusted downward state revenues by $515 million as Patrick used 9C powers to cut $225 million and drew additional money from the rainy-day fund. Revenues picked up in the second half of the year, giving the state a surplus.
"There are many things that move in the course of the year in the budget, and we are actively working all the time to understand what those things are and to manage the budget carefully," Shor said.