Governor Wins Kudos for Effort

WHILE governors across the United States propose unpopular, belt-tightening budgets this month, Massachusetts Gov. William Weld (R) presents his spending plan with a smile. His $14 billion budget, unveiled last week, would not only cut income taxes, but also increase funds for public education and public safety, and bridge an estimated $1.6 billion budget gap as well.

Although economists have doubts about how Mr. Weld will finance his spending plan, the new, conservative governor has been praised for his efforts over the past year to bring a severe fiscal crisis under control. His 1993 spending plan, which begins July 1, is aimed at restoring economic growth and providing jobs through tax relief.

"We've been working for 13 months to control the size of government and limit its growth, and I think it's time that the taxpayers got a little bit of a dividend from those efforts," Weld said at a press conference. "Government has a tendency to spend the money that's available, and the surest way I know to help in the effort to limit the growth of government is to withdraw a little bit of the revenue that the government is getting."

Thirty-four states are struggling with budget gaps this year, according to the National Association of State Budget Officers. Most of the New England states have been hit particularly hard. In Connecticut, for example, Gov. Lowell Weicker pushed through the state's first-ever income tax to bring in additional state revenues. That state now faces an estimated $150 million to $200 million budget gap for fiscal year 1992. Maine faces a $119 million gap this year, while Rhode Island is struggling with projec ted $203 million deficit for 1993.

Regional economists note, however, that the New England states are beginning to get a handle on their budget problems.

"New England state governments are beginning to face the fiscal facts. They all reduced growth and spending and/or raised taxes sharply to try to balance their fiscal year '92 budgets and to pay off debt and previous deficits," says Robert Tannenwald, economist at the Federal Reserve Bank in Boston. "Despite this belt-tightening, every state in the region except Massachusetts faces a deficit this fiscal year, absent further spending cuts, and/or tax increases." Economists predict that Massachusetts will end this fiscal year with a small budget surplus. Last year's balanced budget was the first sign of hope that state leaders were getting a handle on the fiscal crisis.

Weld and the Democratic legislative leadership "worked together to produce a balanced budget, and it's the first balanced budget this state has had in six years," says Michael Widmer, executive vice president of Massachusetts Taxpayers Foundation.

Weld's $192 million tax relief package for next year includes a reduction of the state income tax from 5.95 percent to 5.75 percent.

The plan also includes a gradual phase-out of the capital-gains tax as well as tax incentives to businesses that create jobs, expand job-training programs, and provide child care. The governor also plans to increase public education funding by $200 million, level-fund local aid, and allocate $28 million to preventive human service programs.

Weld's budget features cuts in state employee insurance as well as in the state's General Relief program for the needy.

Critics say his plan, which calls for a 7 percent increase in spending over last year's budget, doesn't fall in line with his professed ideas to cut down on spending. Others argue that his tax-relief proposals will not necessarily result in promoting jobs and economic growth.

"There is no evidence whatsoever that the tax proposal the governor has set forth will have a significant impact on productivity, employment, and economic growth," says Mr. Tannenwald of the Federal Reserve, who also headed a state legislative commission on tax reform.

"Tax incentives don't create new demand," he says. "Therefore the evidence suggests tax incentives are a dubious bet and like any bet, they have a downside risk. If they don't succeed in stimulating growth, employment, and investment, money is just redistributed around."

The state's 1993 spending plan features a new budgeting tool designed to commit state agencies to specific goals over the next fiscal year.

Called "program budgeting," it is currently used in over half the states. But Massachusetts is the first state to use it extensively throughout its budget, according to Dominic Slowey, a Weld spokesman.

"The idea is that, if you're an average citizen, there is no way you can understand what the state is doing with your money from the old budget format," he says. "For the first time, you actually have some kind of accounting for what you're spending the money on, so that it focuses on output, outcomes, and results."