Massachusetts Gov. Deval Patrick yesterday released his $27.9 billion fiscal 2010 budget proposal, which includes spending cuts, anticipated federal funds, rainy-day revenues, and new tax increases to help bring expenditures in line with revenue.

The state will enter fiscal 2010, which begins July 1, with a $3.5 billion deficit, which the governor proposes to close by implementing $1.6 billion of spending cuts - including a $220 million reduction in local aid - and $711 million of funds from an anticipated federal stimulus package that Congress is currently working on. In addition, Patrick's proposal, called an emergency recovery plan, uses $586 million of rainy-day funds and $587 million of revenue from tax increases.

The additional spending reductions follow $1.2 billion of cuts to help balance the fiscal 2009 budget, including $128 million less in local aid, as revenues have come in below earlier projections. Because of the $3.5 billion structural gap for fiscal 2010, the governor said his administration needed to look for further spending reductions and new revenue.

"The national recession is inflicting serious pain across Massachusetts, from household budgets to the state's balance sheets, and like many residents throughout the commonwealth, we have to make do with less," Patrick said in a press release. "At the same time, we also have opportunities. The economic recovery plan leverages reforms and responsible budgeting that could help alleviate the mounting pressure on our communities now and in the future."

In addition, the state anticipates borrowing approximately $1.7 billion in fiscal 2010 to support a $2.53 billion capital budget. Debt service will total $2.2 billion next year, according to budget documents, up from the $2.05 billion paid in fiscal 2009 for principal and interest payments on its outstanding debt.

Of the $2.53 billion capital budget, transportation will receive the biggest allocation, $1.3 billion. Municipal projects - including road and bridge improvements, land acquisition, energy efficiency projects, and library construction - will receive $244 million. Housing development, the state's court system, and economic development projects will gain $166 million, $131 million, and $128 million, respectively, according to capital budget documents.

The proposed $220 million fiscal 2010 cut in aid to municipalities relies on lawmakers approving a bill to increase the state tax on meals and hotels by 1%, which could generate $150 million. Without the increase, local aid would decrease by $375 million next year, a 7% drop in funding.

Patrick's plan would take a total of $1.1 billion from the reserve fund in fiscal 2009 and fiscal 2010 combined, leaving the state with a $850 million rainy-day fund for future years.

"Given the magnitude of our economic downturn and considerable uncertainly about the timing and pace of any recovery, it is critical to maintain a sizeable balance in our rainy-day fund for fiscal year 2011 and beyond," according to the fiscal 2010 budget narrative.

Along with the $711 million of federal stimulus funds to help balance the fiscal 2010 budget, Patrick announced yesterday he will use $533 million of anticipated federal Medicaid funds to help fill a $1.1 billion gap in the current budget.

The governor also proposed long-term changes to the commonwealth's budgetary process. The administration is pushing to re-evaluate the state's use of capital gains revenues within annual operating budgets. Since capital gains receipts have fluctuated year to year in Massachusetts, Patrick is proposing that the state set a maximum amount of capital gains revenue to be included in overall revenue estimates. Any years where capital gains revenue exceed that maximum amount would then be placed in the commonwealth's rainy-day fund.

"Unfortunately, during years of extremely strong growth in capital gains revenues, the state has made spending commitments at the same pace - yielding structural budget deficits when capital gains revenues moderate and requiring extreme cuts when they plummet," according to the fiscal 2010 budget narrative.

Massachusetts' capital gains are expected to decline by roughly $1.3 billion from fiscal 2008 to fiscal 2010.

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