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Surplus is focus of campaign battle

Baker’s critique of Patrick’s handling of funds is called misleading

By Brian C. Mooney
Globe Staff / May 24, 2010

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This year’s race for governor is shaping up as a referendum on the role and size of state government in Massachusetts, and Republican challenger Charles D. Baker and Democratic incumbent Deval Patrick are clashing fiercely over the governor’s handling of state finances, a central element of that debate.

In February, Baker wildly claimed that Patrick inherited a $5 billion surplus from Patrick’s Republican predecessor, Mitt Romney, and later acknowledged that he wrongly cited data that has nothing to do with the operating budget.

Now, Baker contends that the surplus was actually $77 million and that Patrick blew that as soon as he took office in 2007 by reinstating $383.6 million in emergency budget cuts Romney made before leaving office.

It is a key point in Baker’s broader argument that Patrick, with the Legislature controlled by his party, has spent too freely and mishandled the state’s reserve fund by starting to drain it before the onset of the devastating recession, which caused state tax revenues to collapse starting in fall 2008. Patrick tapped the so-called rainy day fund “before it started to rain,’’ Baker argues.

A third candidate in the race — state Treasurer Timothy P. Cahill, running as an independent — has also criticized Patrick’s fiscal management.

An examination by the Globe shows that Baker is on solid footing with his critique of Patrick’s early use of the rainy day fund, but on shaky ground about the surplus he contends the governor inherited.

To support its surplus argument, Baker’s campaign cites the state comptroller’s Statutory Basis Financial Report for fiscal 2007, which calculated that expenditures exceeded revenues by $307 million. In an Internet ad blasting Patrick, the campaign concludes that if Patrick had not restored the Romney cuts, there would have been a $77 million surplus. The state Republican Party and other Baker allies have amplified the charge.

“The bottom line is that Deval spent more than what came in that year: Spending exceeded revenues,’’ said Rick Gorka, Baker’s campaign spokesman. In only two of the prior 12 years did that occur, Gorka said.

Romney initially cut $425 million but restored $41.4 million after revenue improved in November 2006. The balance, which Patrick fully restored, included $28 million in pay raises for human services workers, $25 million in rate relief for customers of the Massachusetts Water Resources Authority, $31 million for the Rose Kennedy Greenway, and scores of local projects that Romney considered pork.

Baker’s conclusion regarding a supposed surplus when Patrick took office, however, greatly oversimplifies the factors that go into calculating a surplus or deficit, and it ignores the caveat offered by comptroller Martin J. Benison in the same 324-page report Baker based his charge on.

Benison cautioned about calculating an annual surplus or deficit based on one year’s data, because in fiscal 2007, the state spent about $936 million in funds that were authorized by the Legislature late in the prior year when Romney was still governor. Benison also pointed out that Patrick’s administration had added $91 million to the stabilization fund at the end of fiscal 2007.

Patrick has fired back at Baker’s critique, saying his rival is being dishonest.

Jay Gonzalez, Patrick’s secretary of administration and finance, called Baker’s contention about the surplus “just false’’ and said “using portions of the comptroller’s report the way they did is misleading.’’

Longtime fiscal watchdog Michael J. Widmer, president of the business-backed Massachusetts Taxpayers Foundation, agreed, criticizing the Internet ad produced by Baker’s campaign.

“There are vastly more moving pieces that [Baker] leaves out of the ad, so the ad is misleading,’’ Widmer said. “I don’t think it’s accurate to say Patrick inherited a surplus, even on the basis of the numbers used in the ad.’’

State revenue was coming in at a level exceeding projections for the year even before Romney left office and ultimately produced almost $800 million above the benchmarks used to prepare the budget, more than enough to cover the cost of the cuts that Patrick restored, Widmer said.

Widmer, however, agrees with Baker on the issue of dipping into the state’s reserve fund prematurely.

“In fiscal ‘08, they used $315 million of [rainy day fund] money, when the economy was still good,’’ Widmer said. “That was a mistake, and we said so at the time. You shouldn’t be dipping into rainy day funds when the economy is recovering. We’re paying a price now, when we could certainly use that money.’’

The stabilization fund, which grows in good economic times, was created to help the state weather cyclical economic downturns, and at the end of Patrick’s first six months in office, the balance peaked at more than $2.3 billion.

But Patrick and the Legislature tapped it for $625 million to balance two budgets before the worst recession in nearly eight decades caused state tax revenue to start plummeting in fall 2008. About $235 million was used to cover a shortfall in state lottery revenue that was to be distributed as local aid to cities and towns, and another $100 million was to pay for Medicaid costs that the federal government did not reimburse the state for until the following fiscal year.

To get through last fiscal year, nearly $1 billion more from the fund was used to balance the budget, leaving $841.3 million in the rainy day fund by June 30. Patrick has projected using another $192.5 million by the end of the current fiscal year next month, which would drop the total reserve fund balance to about $658 million.

Baker’s campaign produced a letter from Leslie Kirwan, Patrick’s first secretary of administration and finance, and signed by Patrick on the day after he took the oath of office in January 2007 as evidence of the administration’s inclination to spend first, using one-time revenues, rather than make harder decisions to cut expenses. Kirwan recommended that if revenues were insufficient, he should seek stabilization funds to cover any shortfall.

Brian C. Mooney can be reached at bmooney@globe.com.

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