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Fact check: Baker ad is wrong on state budget

Associated Press | 5/18/2010, 7:47 p.m.

Republican Charles Baker makes two key points in criticizing the financial stewardship of Deval Patrick, the first-term Democrat he is trying to unseat as governor.

The first is that Patrick began spending the state’s rainy-day fund “before it started to rain.” That claim is correct.

The other is the governor created a deficit for the state in 2007 by immediately reversing spending cuts made by his predecessor, Republican Gov. Mitt Romney. On that, Baker is wrong.

Both claims have been an early flashpoint in a campaign that includes a third candidate, Treasurer Timothy Cahill, a former Democrat running as an independent.

Baker, who was the Weld administration’s budget chief before becoming president of Harvard Pilgrim Health Care, says his background would make him a better custodian of the state’s finances.

He says Massachusetts is limping through the recession on its savings and federal stimulus funding, rather than slashing spending and fundamentally changing its operations.

“We should have been pursuing reforms and savings initiatives so that once all that one-time money runs out, we’d be in a position to live with whatever that new normal looks like,” Baker said last  week.

Patrick says Baker is being dishonest. Patrick notes the three major bond rating agencies have repeatedly affirmed the state’s credit rating, citing his aggressive fiscal management.

“If there’s this little integrity in the campaign, where’s the integrity going to be in the administration?” the governor asked last week.

The Commonwealth Stabilization Fund is designed to be filled in good economic times and tapped during the bad. The aim of the “rainy-day fund” is to minimize tax increases and public service cuts amid the normal ebb and flow of economic cycles.

When Patrick took office, the state was in the middle of its 2007 fiscal year. When that ended on June 30, 2007, the fund contained a record $2.34 billion.

For the 2008 fiscal year, Patrick crafted a budget that spent $75 million in interest the fund was expected to accrue from its hefty balance — the third-highest in the country. The Legislature did him one better: It passed a budget spending not only that $75 million, but withdrawing another $240 million.

Both the governor and Democrats who control the House and Senate bet state tax collections would ultimately be stronger than expected, allowing them to avoid the budgeted withdrawals. They were right: tax receipts ended up exceeding expectations, but the money was withdrawn anyway.

First, the state had to make $235 million in local aid payments to cities and towns after the Lottery — run by Cahill — failed to deliver the money it promised them. Second, the state also advanced $100 million in Medicaid payments the federal government later reimbursed.

All told, the rainy-day fund’s balance was reduced to $2.12 billion by the end of the 2008 fiscal year. That is three months before the stock market and auto industries collapsed, and Lehman Brothers, AIG and other major financial institutions went into convulsions soothed only with federal bailouts.

When the new fiscal year began July 1, 2008, the state had a budget balanced through another $310 million withdrawal from the fund. Again, Patrick expected tax revenues would prove strong enough to replenish the money at the end of the fiscal year, despite a slowing economy that prompted all the state’s Republican lawmakers to vote against the budget. Four months later, the depth of the state’s financial crisis became clear.