Massachusetts Mess: No Easy Fiscal Fix

WHEN Michael Dukakis was running for president in 1988, he liked to talk of the Massachusetts ``miracle'' economy, taking credit for it. Now that the economy has fallen flat, he's being blamed for the state's fiscal mess. Economists say Governor Dukakis was not fully responsible for either the miracle or the mess.

One guide to what really happened is a 360-page study of the Massachusetts government, released this week by economists from the Federal Reserve Bank of Boston.

``There are issues that could be useful for all states to think about,'' says Alicia Munnell, the bank's director of research. This is particularly the case as the economic slump spreads from the Northeast and hits state revenues elsewhere.

Here are some of findings of the Fed experts and others:

First, is Massachusetts really ``Taxachusetts?''

The answer, according to the Massachusetts Taxpayers Foundation, is no if you look at total revenues - including revenues from income taxes, sales taxes, and multitudes of fees, etc. - per $1,000 of personal income. By this ratio, the state ranks as 43rd out of the 50 states in fiscal 1988 - the last year for which these comparisons can be made. Massachusetts is a high-income state - indeed, third highest in the union. If you rank Massachusetts taxes on a per capita basis, the state ranked 10th.

Massachusetts is Taxachusetts if you look only at personal income taxes. The state depends heavily on these taxes. It gets less revenue proportionally from other tax sources, such as sales taxes, than most states. Thus state personal income taxes per capita were the second highest in the nation in fiscal 1988.

Second, the Massachusetts state budget remains in a mess. In fiscal 1990 the deficit grew to $1.1 billion as spending rose to $13.2 billion, despite a lot of cuts in spending and increases in taxes. In the current fiscal year, which began July 1, cuts totaling more than $750 million have been made by the legislature or the governor in a desperate effort to hold spending to a level that can be paid for with declining revenues. But there is still talk of a deficit of $300 million to $500 million in the current fiscal year.

Third, Massachusetts has a reputation for being one of the patronage centers of the nation, ranking up there with New York City and Chicago. Radio talk-show hosts are often harping on various signs of personnel mismanagement. Probably a majority of citizens of Massachusetts believe that fiscal salvation could come from slashing the bureaucracy.

Fed numbers show that total state employment, relative to population, is similar to that of other high-technology and industrial states in fiscal year 1989. The picture is somewhat different, however, if employees in public education are excluded. The commonwealth of Massachusetts has relatively few employees in the education field. Massachusetts depends much more on its famous private schools for education than do most states. So Massachusetts non-education state employees relative to population greatly exceed comparable state norms.

There has been some reduction in the number of state workers since mid-1989. Nonetheless, the experts say some savings are undoubtedly possible by trimming the bureaucracy further. But these won't completely cure the deficit problem.

So the politicians must tackle the real budget busters. The biggest of these is Medicaid payments. It is the state's largest single program. Medicaid has become a problem for all state governments. It is the jointly funded federal-state program enacted in 1965 to finance health care for specific categories of poor people. In Massachusetts, Medicaid expenditures grew at 5.1 percent annually in real terms (after inflation) from 1980 to 1989, and an 11.8 percent real rate in the last two fiscal years. This is due primarily to soaring medical costs, not the growing long-term care needs of the elderly. Massachusetts has the most generous eligibility requirements and benefit payments of any state. The state's spending per Medicaid recipient is 23 percent above the national average.

Nonetheless, since the taxpayers indicated by their November voting pattern that they do not want more tax increases, trimming Medicaid payments may be necessary, the Boston Fed economists say. Other states may face the same difficult task.