Think Tank’s Alarming Report on MA Fiscal Health Not Shaking State House Walls

[author: John Hahesy]

From what I can tell about the Mercatus Center, it won’t be going out of its way soon to hire anyone who worked for Ted Kennedy, or Tom Birmingham for that matter. 

That doesn’t mean we shouldn’t consider, if only for a moment, what the center has to say about the financial health of the Commonwealth of Massachusetts – although there’s been no outward sign  anyone in a position of power in the legislature has given it even that much thought.

Last Wednesday, June 1, the center released the results of its 2016 study on the financial health of all 50 states, in which it ranked Massachusetts 49th.

Massachusetts deserves to be categorized among the worst five states, the center said, largely because it has low amounts of on-hand cash and large debt obligations. 

“Each of the bottom five states exhibits serious signs of fiscal distress, making these states’ debt levels look more like Puerto Rico,” the report asserts.  “Though the states’ economies may be stronger than Puerto Rico’s, allowing them to better navigate fiscal crises, their large debt levels still raise serious concerns.”

The report also asserted that “…High deficits and debt obligations in the forms of unfunded pensions and healthcare benefits continue to drive” each of the bottom five states “into fiscal peril.” 

Massachusetts and the other Mercatus bottom-dwellers  – Connecticut, New Jersey, Illinois and Kentucky – each hold “tens, if not hundreds, of billions of dollars in unfunded liabilities,” which constitute “a significant risk to taxpayers in both the short and long term,” the report said.

States ranked by the center in the top five, fiscal health-wise, were Alaska, Nebraska, Wyoming, North Dakota and South Dakota.  The report may be found in its entirety at:

http://mercatus.org/statefiscalrankings

Governor Charlie Baker was quick to throw cold water on the report.  In an interview with the Boston Herald, Baker pointed to the state’s high bond rating, which assures the state of favorable interest rates when borrowing, and the overall strength of the Massachusetts economy.

“Fitch (one of the agencies that issues bond ratings) actually came out and affirmed their (AA+) rating today and said that, among other things, we have a diversified and very successful economy,” Baker told the Herald.  “They also said we have a very strong working relationship with the legislature.  When we see problems, we articulate them and we solve them, and that’s going to continue to be the way we handle our fiscal situation…”

Two days after the release of the Mercatus report, on Friday, June 3, the Massachusetts Department of Revenue reported that, through May 31, state tax revenue is running $311 million below projections for Fiscal Year 2017 (July 1, 2015-June 30, 2016).  That picture is unlikely to improve much in one month, meaning the governor and legislature will be straining soon to close the gap before the fiscal year ends.

The Mercatus Center has been described as “a free-market-oriented research, education, and outreach think tank.”  (Mercatus is Latin for market.)  The center, a non-profit, is a big deal at George Mason University in Alexandria, Virginia, where it’s headquartered: it has an annual budget in excess of $10 million, and employs 71 persons on its faculty and 53 on its staff.

Tyler Cowen, who holds a doctorate in economics from Harvard, directs the Mercatus Center.  A prolific writer of books (“The Great Stagnation”) and journal articles, Cowen, age 54, was once described by the Los Angeles Times as “a man who can talk about Haitian voodoo flags, Iranian cinema, Hong Kong cuisine, Abstract Expressionism, Zairian music and Mexican folk art with seemingly equal facility.”

Wouldn’t you like to be a fly on the wall if Cowen ever got together for lunch at the State House with his fellow Harvard alum Baker?  They could discuss the GDP of the Netherlands and compare notes on their favorite health care accounting software.

In the next two years, there will likely come a time when Baker, struggling to make a point about how state government has to really tighten its belt, will be tempted to cite the work of the Mercatus Center.

After all, Greg Sullivan, a leader at the Pioneer Institute in Boston, which Baker once served as executive director, has called the Mercatus report “a wake-up call to elected officials, ” warning that “billions of dollars of unfunded obligations” is “looming beyond the (Massachusetts) horizon.”

For fear of offending the Democrats, who maintain total dominance of the legislature  — and of being associated with the Koch brothers, the bogeymen of liberal bogeymen,  who have donated generously to the Mercatus Center – Baker will not give in to that temptation.