By Matt Murphy

State House News Service

BOSTON -- Already facing the "strong likelihood" of midyear budget cuts due to slow economic growth, Gov. Deval Patrick's budget chief told local leaders Wednesday that a failure by Congress to avert the "fiscal cliff" would cost the state up to $300 million this fiscal year and $1 billion over the next full fiscal year.

Secretary of Administration and Finance Jay Gonzalez provided the projection to town and city officials at a meeting of the Local Government Advisory Commission, advising them that hundreds of millions of dollars in grants that flow through the state to municipalities could be at risk, as well as almost $1.5 billion in defense and health spending.

"The consequences of this are pretty dire," Gonzalez said. "I think we've seen some positive statements coming out of Washington about a commitment to try to address this in a responsible way before January."

Following a dismal month for tax collections in October that saw the state fall to $256 million below revenue projections for the year, Gonzalez said no final decisions have been made but reported a "strong likelihood" that the administration would revise downward its revenue projections and announce midyear budget cuts soon.

While economic growth of 1.9 percent in the third quarter was slower than anticipated, due in part to uncertainty over federal deficit negotiations and economic turmoil in Europe, Gonzalez said the failure to address the fiscal cliff could have a further chilling effect.

Come January, a number of federal tax breaks are due to expire and $1.2 trillion in budget cuts spread over nine years will go into effect unless the lame-duck Congress can find common ground on an alternative approach to deficit reduction.

Gonzalez said economic forecasters have estimated that the economy across the country, including in Massachusetts, could slow by another 1 percent to 1.5 percent if sequestration cuts are allowed to go into effect. The Department of Revenue estimates tax collections in Massachusetts would decline by up to $300 million over the second half of fiscal 2013 and the first quarter of fiscal 2014, and could total $1 billion in reduced revenue over the next full calendar year, according to Gonzalez.

Cuts to defense and health spending, both cornerstones of the state's economy, would also siphon money from the economy. The Patrick administration estimates federal spending in the defense sector could be reduced by $1.2 billion annually, while National Institutes of Health funding to the state would fall by $188 million a year.

Formula and discretionary grants that flow through the state to municipalities could also be slashed by $200 million, impacting special education, Title 1 grants, low-income home-energy assistance, child care and small city and neighborhood stabilization block grants.

Gardner Mayor Mike Hawke said cities would bear the brunt of going over the "fiscal cliff," projecting that unemployment in his city would "tumble back" to 11 percent or 12 percent from its current level of 8.7 percent, well above the state average.

"This is obvious that as a Massachusetts Republican none of this is my fault," Hawke said.

Lt. Gov. Timothy Murray, who chaired the meeting, said the Patrick administration has initiated conversations with the White House and Congressional delegations about the importance of reaching a bipartisan compromise, and said some "belt-tightening" would be needed, but there's a more responsible way to do it.

"It's all muscle and bone we're talking about here," Murray said.

The Massachusetts Association of School Committees is urging members to write articles and op-eds to local newspapers describing the risks.

Braintree Mayor Joseph Sullivan suggested that an early commitment to Chapter 90 local transportation infrastructure funding from the state could be a "stimulus" for cities and towns and help to create economic growth to offset loss in tax revenue. 

"This is our number-one priority," Sullivan said.

Danvers Assistant Town Manager Diane Norris noted that for the past two years, Chapter 90 funding has not been available for municipalities to spend until July, costing half the construction season despite cities and towns getting their notification letters in April as mandated by law.

"It wasn't worth the paper it was written on because we couldn't take it to the bank," she said.

Norris floated the idea of doing a three-year, $1 billion bond that would guarantee at least $300 million a year in Chapter 90 funding for municipalities and allow them to plan accordingly.

Murray made a point of noting that the delay in Chapter 90 approval this year was "an issue between the House and Senate. I just want to be clear on that. We agree with you we want to put the money out sooner rather than later."

Alluding to the long-term transportation financing plan the administration is planning to roll out in January, Murray also suggested putting pressure now on lawmakers to support infrastructure funding.

"I don't think it's too early for all of you to sit down with your legislative delegations, your reps and senators, now to talk about what this means," Murray said.