E-Mail This Article to a Friend Mind the gap Massachusetts keeps spending more than it makes. Is it time for a tax hike? BY ADAM REILLY

IT’S THE FIRST commandment of budgeting: spend what comes in, and not a penny more. Most people have to obey this rule, but politicians have a freer hand. Consider President George W. Bush’s push to make his regressive tax cuts permanent, even with America’s debt approaching $7.5 trillion. Here in Massachusetts, meanwhile, an ominous chasm is opening between the state’s revenues and expenditures. According to the Massachusetts Taxpayers Foundation, over the course of the current fiscal year — which began on July 1 and ends on June 31, 2005 — the state will spend about $1 billion more than it takes in. And fiscal year (FY) ’06, to use budgetary parlance, could be just as bad. Earlier this month, Robert Costrell, the Romney administration’s top economist, predicted that state revenue in the next fiscal year would come to about $17 billion — which, if current spending levels hold, means Massachusetts will again face a shortfall of almost $1 billion.

The solution seems obvious: spend less, or get more money. But spending less won’t be easy. Beacon Hill has hacked about $3 billion from the state budget since 2002. That figure includes a host of cost-effective social programs, and further human-services cuts promise to be extremely painful. At the same time, the most recent legislative session gave Massachusetts residents ambitious new early-childhood-education and school-building-assistance programs. The latter should save money down the road, but will cost millions in the short term; the former, while admirable, could soon carry a $1 billion annual price tag. Then there’s the recent Supreme Judicial Court ruling in Hancock v. Driscoll, which mandated revamped funding for state public schools and could cost the Commonwealth from $1 billion to $3 billion annually once it’s implemented.

That leaves increasing revenue. But with legislative leaders avoiding any talk of new taxes — and Romney actually plugging a tax cut — this possibility looks highly unlikely. All of which suggests an unsettling conclusion: despite a near-consensus that Massachusetts has a grave, long-term budgetary problem, no one’s willing to solve it.

NOT EVERYONE likes the term "budget gap." Tom Birmingham, the former Senate president and staunch champion of human-services funding, claims conservatives use the phrase to justify "starving the beast of government." On the other end of the ideological spectrum, David Tuerck, the director of Suffolk University’s conservative Beacon Hill Institute, argues that liberals invoke the "budget gap" to protect pet programs by giving them a patina of necessity, when in fact nothing is essential. "It’s a fabricated concept," Tuerck says.

Whatever its rhetorical ambiguity, though, there are some hard numbers behind the budget-gap idea. In FY ’04, according to the business-funded Massachusetts Taxpayers Foundation, the state budget was balanced using almost $900 million in "one-time" funds — that is, money from sources that won’t always be available. In the current fiscal year, the state is covering its costs with one-time funds totaling nearly $1 billion, including $600 million from its rainy-day fund.

These numbers come with an asterisk. Massachusetts ended the last fiscal year with unexpectedly high tax receipts — high enough largely to offset the $900 million in one-time revenues used when the FY ’04 budget was finalized back in 2003. In a best-case scenario, tax receipts will continue outpacing predictions, and all these warnings of a budget gap will come to seem, as Birmingham puts it, "wildly exaggerated." But few people on Beacon Hill expect this to happen. The consensus among House and Senate leaders seems to be that the state will face an initial FY ’06 shortfall in the neighborhood of $1 billion.

You’d think this prediction, combined with the grim forecast his own economist issued last week, would give Governor Mitt Romney pause. After all, just a few months ago, Romney cited the unexpected tax windfall to bolster his argument that the state income tax should be dropped from 5.35 to five percent. (In 2000, voters approved a referendum to lower the tax from 5.85 to five percent; the legislature froze it at 5.35 percent during the 2002 fiscal crisis.) But now that his own adviser has produced numbers suggesting a revenue shortfall, it would stand to reason that the governor would come to the opposite conclusion, right? Guess again. After Costrell’s prediction came out, Lieutenant Governor Kerry Healey told the Boston Globe that the Romney administration would stay the course, saying: "We always strive to be fiscally conservative. We would not propose something that wasn’t prudent." (Healey’s argument — a tax cut makes sense, because we only propose sensible things — is positively Bushian in its circularity.) Earlier this week, Romney spokesman Eric Fehrnstrom told the Phoenix that the governor still wants to cut the income tax to five percent. No one expects Romney to lead the charge for a tax hike. But his persistence in the face of cautionary data suggests his tax-cutting commitment is driven more by ideology than by pragmatism.