8 May, 2012
In keeping with the Patrick-Murray Administration's commitment to responsible fiscal management, the Executive Office for Administration and Finance today released the Commonwealth’s first formal policy to ensure long-term fiscal sustainability. The Long-Term Fiscal Policy Framework includes five-year budgetary forecasts, identifies the fiscal challenges to sustaining vital government programs, and articulates specific policies to address these challenges.
“This fiscal policy framework is an essential tool to help us achieve a more secure fiscal future for the Commonwealth,” said Governor Deval Patrick. “Strong fiscal management will deliver long-term benefits for the next generation.”
This framework continues the Patrick-Murray Administration’s focus on long-term fiscal discipline. Since taking office, the Administration has introduced the state’s first ever debt affordability analysis, passed landmark pension reform legislation and implemented long-term fiscal policy measures in the FY 2011 and FY 2012 budgets that have eliminated the state’s structural deficit. This fiscal discipline by the Administration and the Legislature has been validated by the national credit rating agencies, which have awarded the state its highest ever bond ratings in the Commonwealth’s history.
“This long-term fiscal policy builds on the Patrick-Murray Administration’s record of strong fiscal management and will help us sustain a consistent level of programs and services over time,” said Secretary of Administration and Finance Jay Gonzalez.
"This work reflects the thought and planning that taxpayers deserve," said Senate President Therese Murray. "This type of long-term budgetary forecasting and analysis is essential to the future health of our economy."
“I commend the Patrick-Murray Administration for its persistent efforts in helping to get Massachusetts back on the right fiscal track,” said House Speaker Robert A. DeLeo. “Although the Commonwealth is still faced with one of the most daunting downturns since the Great Depression, long-term fiscal planning is vital as we prepare for and make the most of our economic recovery.”
“I fully support this strategic, forward-looking initiative, which will be a critical ingredient to both maintaining the Commonwealth’s AA+ bond rating, the highest in our history, and saving taxpayers tens of millions of dollars every year,” said Treasurer Steven Grossman.
The Long-Term Fiscal Policy Framework sets clear goals for long-term fiscal planning and addressing our long-term fiscal challenges, including:
- Structural balance - Budgetary spending should be based on a sustainable level of revenue, excluding fluctuations that can occur as a result of the economic cycle. The Long-Term Fiscal Policy Framework articulates policies to ensure structural balance, including policies around appropriate use of one time resources and deposits to the stabilization fund.
- Sustainable spending growth – It is critical that spending growth be managed at a level that is consistent with revenue growth. The achievement of this goal will require policies to continue to contain health care cost growth in order to sustain funding for vital government services in the future.
- Disciplined management of long-term liabilities – This is necessary to protect future generations by preventing the costs associated with debt and unfunded retirement benefit obligations from crowding out other government services and investments in the future. This Long-Term Fiscal Policy Framework summarizes existing policies for long-term debt, successful efforts to manage pension liabilities, and emphasizes the need to address retiree health care costs.
The framework is informed by best practices recommended by the Government Finance Officers Association (GFOA) and is based on independent five year revenue and economic forecasts and rigorous analysis of budgetary spending.
“This document reflects good government in action,” said Alan Clayton-Matthews, an economist at Northeastern University. “It lays out a fiscally responsible plan for providing an achievable stable level of public goods and services under current tax law and given the reality of the current economic situation and economic risks going forward. It also informs policy makers of what the tradeoffs are between the future fiscal situation and alternative scenarios of growth in health care costs.”
“The Commonwealth’s Long Term Fiscal Policy Framework represents a significant step forward in the process of long term budgeting,” said Harvard Economics Professor James Stock. “The tools and methods developed in this Framework represent a careful and thoughtful implementation of state-of-the-art professional methods for long term budget forecasting that will provide periodic updates and ongoing reviews of the Commonwealth’s long-term fiscal health.”
