Expert: Economic downturn could trump impacts of GOP changes

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2 days ago

BOSTON (SHNS) – Massachusetts could face billions in lost federal revenue and heightened economic risk under the second Trump administration, a budget expert warned lawmakers Thursday, but he emphasized that a broad economic downturn could deal the hardest blow.
Testifying before the House Committee on Federal Funding, Policy and Accountability, Doug Howgate, president of the Massachusetts Taxpayers Foundation, laid out the scale of the state's dependence on federal money: about $25 billion each year. That includes about $14.4 billion in Medicaid funds, as well as transportation and water infrastructure funding, and billions more in federal grants administered through state agencies.
'One in every $4 you just voted to spend in the FY26 operating budget is directly from the federal government,' Howgate told lawmakers. 'To contextualize that, that's about one and a half times what we get from the sales tax — it's like ten times what we get from the Lottery. So just to put your mind around how much that matters, it's a big element of the state budget, second only on the revenue side to the income tax.'
As has been previously reported, President Donald Trump has targeted or promised to come down on areas that Massachusetts, specifically, has a vested stake in — such as higher education and research funding where the Bay State has a nationally competitive advantage. In other cases, like Medicaid spending reductions, the president and Republican-led Congress's policies are likely to affect every state.
Trump and Republicans in Congress say their shift in national policy will put the country on a prosperous path but the view from many at the State House, where Democrats rule, is far different.
The U.S. House voted last week to cut the health insurance program by nearly $700 billion — which state officials have warned could put Massachusetts in jeopardy of losing more than $1 billion annually, with 250,000 residents at risk of losing coverage between MassHealth and subsidized policies at the Health Connector.
Yet even with these policy dangers, Howgate warned that a possible economic downturn could hit the state budget even harder.
'A major change in the global economy, especially a downturn, can have a far greater impact, certainly on public finances, but also on any of the programs we're talking about, than a specific federal policy action,' he said.
Howgate compared potential cuts to Medicaid revenue to the state revenue losses during the Great Recession.
'If you take the revenue loss of 2009 during the Great Recession and you just prorate that forward as state revenues have grown, that's a one-year revenue loss of $6 billion, and those revenue losses persisted for several years,' he said. 'The order of magnitude of a global recession usually far outstrips any of the specific policy things we're talking about.'
Lawmakers pressed Howgate for insight into how the state could shore up revenue if both federal cuts and a downturn hit at once.
'If they succeed in cutting these programs, apart from reallocating part of the budget, there is a need for revenue, and I'm curious to what MTF's view is on ways we can raise revenue if those things do happen' said Rep. Erika Uyterhoeven of Somerville, pointing to the impact on Head Start, food assistance and Medicaid in her district, all of which the Trump administration has threatened to cut.
Howgate responded by pointing to lessons from past crises.
'When we look at the last two economic downturns — the 2001 downturn and the 2008 downturn — what did we see from a state budget standpoint? You saw use of reserves, you saw increases in taxes, and you saw major cuts,' he said.
Clarifying that it wasn't the official stance of MTF, Howgate added, 'If there was a major economic recession in Massachusetts that lasts years, those are the three things you're going to see on the table.'
The state's $8 billion stabilization fund has dramatically grown over the last five years. Legislative leaders have been reluctant to tap into it even during the COVID-19 pandemic.
Howgate advised the Legislature to focus on three strategies: closely track federal budget and tax legislation, prepare for the potential scale of an economic slowdown, and identify which state programs and sectors are most critical to protect.
'There's going to be so many demands on things that the federal government does that the state doesn't do, that making sure we're staying true to the core goals of what government does, I think, has to be front and center,' Howgate said.
He also urged the state to play to its strengths — particularly higher education and research — which are under federal scrutiny but remain key to Massachusetts' economy.
Finally, Howgate underscored that if Massachusetts is to weather this storm effectively, it will require coordinated planning among the House, Senate and administration.
'We can't be moving in three different directions,' he said. 'At the end of the day, so many of these are going to boil down to resource decisions.'
The Senate has its own response effort to the second Trump administration, which they've dubbed Response 2025. The two branches appear to have procedural differences that are slowing down that work of that committee.
Quentin Palfrey, Gov. Maura Healey's director of federal funding, also testified about ripple effects Massachusetts could face — including changes in how the state and municipalities apply for and administer federal funds.
Rep. Mark Sylvia Palfrey of Fairhaven asked Palfrey if his office is actively tracking any changes to the federal application process for grants.
'Just to use as an example, if a municipality or county applies for a federal grant, and it's for infrastructure, and due to either an executive order from the federal government or some other policy edit, they're being directed to no longer refer to climate change as a justification for that infrastructure? Are you tracking any of those developments as part of your office?'
'The answer is absolutely yes,' Palfrey responded. '… It's a little bit of a difficult challenge, where, on the one hand, we want to be in close communication with our partners … and at the same time, we have to be very clear about the limitations that the state budget has to absorb some of these costs.'
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