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State facing long count on revenue; Job cuts may hit 34,000.

Byline: John J. Monahan

BOSTON - Economic predictions that led to Gov. Deval L. Patrick's decision to cut $1.4 billion in state spending call for the loss of as many as 34,000 state jobs over the next nine months, and economists told lawmakers yesterday that state revenues may not recover from an emerging recession until 2012.

Economist Alan Clayton-Matthews of the University of Massachusetts at Boston said state projections that unemployment will rise from the current 5.3 percent to anywhere between 5.8 percent and 6.3 percent by June, follows a year in which surveys of residents show the state has lost 25,000 jobs since the end of last year.

He was one of several economists who testified at a hearing of the Joint Ways and Means Committee yesterday that they expect state sales taxes, payroll taxes and capital gains taxes to continue falling through the rest of this fiscal year and possibly not recover for two to three years.

The cuts are based on projected loss of $1.12 billion in revenues from those anticipated when the budget was passed and about $300 million in unanticipated costs for MassHealth and social service caseloads.

Legislators posed few questions about the governor's plans to eliminate as many as 1,000 state jobs and trim $1.4 billion in spending over the next nine months of the fiscal year, even though the governor cut deeply into many social service programs and eliminated funding for hundreds of budget earmarks for projects in local legislative districts.

Questions during the five-hour hearing focused on how much further the state's economy and state revenues will fall the rest of this year and beyond, and some questions were about implementing a plan to raise state employee health insurance contributions.

State Revenue Commissioner Navjeet Bal said revenues began falling sharply in recent months with motor vehicle sales taxes falling 9 percent in the first quarter of the fiscal year that began in July.

She said the most recent revenue projects anticipate a drop in capital gains taxes that provide about 10 percent of the state revenues and come largely from profits on home sales and investment gains, which are expected to plummet 30 percent from $1.9 billion last year to only $1.3 billion in this fiscal year.

"It's pretty clear now the state's economy, if not already in a recession, is heading there," Mr. Matthews said.

While he and other economists held out some hope that the recession could be short-lived, with an economic turnaround late next year, Finance Secretary Leslie A. Kirwan said state revenue recoveries, which usually lag economic recovery, will likely affect the state budget for several years to come.

"We can expect fiscal '09, 2010 and 2011 to be impacted by this," she told the 26 legislators on the committee who attended the hearing. She said the spending cuts so far are the largest emergency spending cuts ever imposed by a governor.

Projections being used by budget officials for the rest of the fiscal year call for a $525 million drop in capital gains and regular income taxes from the amount anticipated in July when a $28.2 billion budget was approved. The state also expects sales tax revenue to fall by $170 million, motor-vehicle sales taxes to fall by $41 million, corporate income taxes to fall by $145 million and gasoline taxes to fall by $21 million.


CUTLINE: Leslie A. Kirwan
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Title Annotation:BUSINESS
Publication:Telegram & Gazette (Worcester, MA)
Date:Oct 21, 2008
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