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Sunday, October 10, 1993 - Page updated at 12:00 AM

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`Taxachusetts' Turnaround: State Leads In Tax Cutting -- Massachusetts Gov. Weld Attacks Deficit By Rolling Back Programs

BOSTON - For implausible political scenarios, try this one:

Massachusetts, "Taxachusetts" to the political right during the reign of former Gov. Michael Dukakis, is suddenly a beacon for anti-tax activists.

Credit Gov. William Weld, the squash-playing millionaire and Deadhead, who assured voters they wouldn't have to read his lips.

Since he took office in 1990, Weld has cut taxes or canceled scheduled tax increases five times in the midst of a lingering recession while righting the state's balance book.

When Washington voters next month decide the fate of two anti-tax proposals - Initiatives 601 and 602 - they will, in some measure, be choosing between the sharply contrasting visions of government symbolized by how Weld and Washington Gov. Mike Lowry attacked their states' budget problems.

Lowry raised taxes to help close a $1.2 billion gap between expected revenues and anticipated state spending. Partly that was to protect services from even deeper cuts than he made.

But a big chunk of those new taxes and fees are supposed to pay for expanding access to health care and higher education - steps the liberal Democrat considers key to reviving Washington's economy.

Weld gets a lot of national attention as a "New Republican" because of his social views: He's pro-choice, pro-gay rights, pro-gun control.

And he's a former federal prosecutor who still attends Grateful Dead concerts.

His fiscal policies, though, cover familiar conservative terrain: Cut taxes and spending to get the economy moving.

In a state where only one out of seven voters is a Republican and Democrats dominate the Legislature, Weld has successfully pushed his agenda with bipartisan help.

His first budget eliminated a deficit of nearly $1 billion by actually reducing total spending. He trimmed the state payroll by 8,000 workers, cut state-worker benefits and is pushing privatization of many services.

While Lowry speaks of the need for more taxes to prevent cuts in education or social services "that are just too costly to make," Weld aides talk in quasi-military terms of starving the budget to bring government to heel.

"I'm cynical about government, believe me," says Mark Robinson, Weld's chief of administration and finance. "You've got to take money away from the beast. Cut it off at the knees. In some ways, we're pursuing a bad idea whose time has come."

For all the rhetoric about "reinventing government" and squeezing out waste, recent budgets in Massachusetts have been balanced the old-fashioned way - by cutting programs. Weld and lawmakers rolled back what had been under Dukakis among the nation's most generous safety nets.

Among the hits: Housing assistance for the poor and in-home care for the elderly was dramatically reduced, and 15,000 adults were eliminated from the relief rolls. Medicaid recipients now pay more for drug prescriptions. The state's once-dismal Wall Street bond rating has been restored. But cuts in aid to schools and local governments have sent the credit ratings of at least 23 Massachusetts cities plunging.

"Bill Weld deserves enormous credit for balancing a budget during a raging recession without resorting to tax increases," says Michael Widmer of the Massachusetts Taxpayers Foundation, a nonpartisan business-backed research group.

"There are trade-offs. There's only so long you can reposition, reconfigure and reinvent government before you have to start spending again."

It's tricky - and often misleading - to apply one state's budget lessons to another. But the origins of Washington's budget spiral certainly aren't unique.

In the booming mid-1980s, many states - Massachusetts and Washington included - reaped a windfall of tax revenues that helped finance more services. In Washington, the operating budget doubled and the number of state workers grew - by more than a quarter in the last decade. When hard times hit, their shrunken tax bases couldn't support the new programs or keep up with the demands of soaring school enrollments, crowded prisons and double-digit inflation in health-care costs.

It's made for a dismal few years in the nation's statehouses. The National Conference of State Legislatures reports that, like Washington, 32 states this year faced budget deficits without new taxes or cuts. In 1992, 14 states raised taxes by more than 5 percent, fueling the highest percentage tax increase in two decades, according to the NCSL.

In California, Republican Gov. Pete Wilson has raised taxes $7.5 billion in the last two years. At the same time, he cut $2.6 billion of local aid for cities and counties so the state could keep public schools afloat. Welfare grants were just cut for the third year in a row.

In New Jersey, Democratic Gov. Jim Florio, facing a big deficit and court orders to improve schools, raised taxes $2.8 billion in 1990.

In Pennsylvania, Democratic Gov. Robert Casey, who early in his term boasted of being the state's only governor since the 1950s not to raise taxes, eventually pushed the state's biggest increase ever, along with big service cuts and layoffs of 2,000 state workers.

Michigan Gov. John Engler, like Weld a conservative Republican in a traditionally liberal state, eliminated general welfare for adults, closed mental hospitals and reined in other social programs to balance his budget without tax increases.

But his most radical step is a recently approved plan to eliminate property taxes, among the highest in the nation, as the source of operating funds for schools. To replace that money, Engler is asking voters to repeal a cap on the sales tax.

Few states hemorrhaged worse than Massachusetts during the late 1980s. With the collapse of the so-called "Massachusetts Miracle" - the economic resurgence built on computer and defense industries - the state lost an estimated 400,000 jobs between 1988 and 1992.

In the final Dukakis years, the state issued bonds to cover operating costs. By the time Weld took office, observers say there was bipartisan consensus on the need to place a tourniquet on the state budget.

Weld backed a reduction in the income-tax rate and repeal of a sales tax on services. He also vetoed bills that would have weakened Proposition 2 1/2, a California-style property-tax cap passed by voters in 1980.

In all, that's provided about an estimated $475 million of tax relief since 1991, the Taxpayers Foundation estimates.

Many of the repeals Weld is credited with, including the income-tax rollback, were actually put forward by Democrats. And Dukakis already had trimmed thousands from the state work force and begun cutting services by the time he left office. The state also was bailed out by an unexpected $500 million windfall of federal Medicaid dollars.

While many leaders say Weld's restored some business confidence, the state's economic recovery remains very sluggish.

Still, says Barbara Anderson, head of the citizen's anti-tax group that created Proposition 2 1/2, "Bill Weld has turned the promise not to raise taxes into a powerful weapon. And that forces people to see that our problems in places like schools are much bigger than money."

Unlike his record on taxes, Weld's success keeping the other part of his agenda - changing the way government conducts its business - is more debatable.

Weld has been at the forefront of the debate about "privatization." He talks about selling off highways and giving parents vouchers to pay for private schools. Actual steps in that direction are more modest.

Skating rinks, highway maintenance, prison health care and food services, and public-hospital pharmacies have been bid out to private contractors. Licensing offices now are in malls and open evenings.

Weld took on the powerful public-employee unions to shut 11 state hospitals for the mentally ill and disabled that were operating at only a fraction of capacity. Those patients now are cared for in the community by private providers.

But such contracting-out of services - as opposed to actually ending government involvement - isn't novel. And it's being pursued by governor of all ideologies. In Washington, many services already are provided by private vendors. The budget signed by Lowry calls for the downsizing, even closure, of institutions.

"You can definitely say a lot of what Weld gets attention for is hype," says Steven Gold, director of the Center for the Study of the States in Albany, N.Y. "Three years in office isn't a real test. This is not stuff you can do overnight with the snap of a finger."

However, in towns like Brockton - with its potholed streets and weed-filled schoolyards - Proposition 2 1/2 did just as its proponents advertised: It brought relief to homeowners by ratcheting down what were then some of the highest property taxes in the nation.

But Brockton Mayor Winthrop Farwell blames it for much of the decline of schools and municipal services - as much an indicator of quality of life, he claims, as low taxes - in his town. Throughout much of the 1980s, the state, flush with cash, helped make up the difference with direct aid. But the first two budgets Weld signed slashed that aid by more than 20 percent.

A town brochure boasts of Brockton - 45 minutes south of Boston - as the one-time shoemaking capital of the world and the hometown of boxing champs Rocky Marciano and Marvin Hagler. Its current notables are grimmer: a bond rating that a few years back was among the nation's worst, empty public swimming pools and libraries closed on weekends.

Farwell claims layoffs of more than 15 percent of its police and firefighters have even forced home-insurance rates up. No one fingers Weld as the source of those problems. What some question is whether Weld's do-more-with-less approach provides enough answers.

At Brockton's East Junior High, $500,000 worth of shop machinery sits idle because industrial arts - along with foreign languages, home economics and most team sports - have been cut.

The rural town of Wales made headlines two years ago by cramming 60 students into one class until it got emergency aid to hire new teachers.

Widmere of the Taxpayer Foundation says Weld has spent money on areas where the state can make a difference in the economy, such as transportation or schools.

The governor backed a Democrat-sponsored, education-reform plan that will increase school funding by nearly $1 billion over the next seven years. The price of his support: no new taxes to pay for the long-term costs, and no tinkering with Proposition 2 1/2 to make it easier to raise money through local property taxes.

That leaves some wondering when, as one magazine writer put it, his desire to be an education-reformer or build roads bumps up against his libertarian abhorrence of taxes.

Ira Jackson, a Bank of Boston official and former Dukakis official, counts himself a Weld admirer and says the governor's financial policies have won business support. Still, he thinks Weld must prove himself more than a tax-cutter.

"There's consensus among businesses here we not only have to reinvent government, but also reinvest at some point," Jackson says.

Copyright (c) 1993 Seattle Times Company, All Rights Reserved.

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