Mitt Romney was sworn in as the 70th governor of Massachusetts on January 2, 2003, along with Lieutenant Governor Kerry Healey. Romney's term ended on January 4, 2007; he chose not to run for re-election.
Inauguration Romney's swearing in as governor used the same Bible that his father George Romney had used when he was sworn in as the Governor of Michigan. In his 15-minute inauguration speech in the Massachusetts House of Representatives, he avoided policy specifics, but said that he intended to bring about a "lighter, more agile bureaucracy." The overall inauguration festivities took place over three days and emphasized themes around common citizens.
Upon taking office, Romney faced a state legislature in which Democrats held 85 percent of the seats. Indeed, the state Republican Party had fielded no candidate for 62 percent of the seats during the 2002 state elections.
From the outset Romney sought to show himself as the state's first 'CEO governor'. His choices for the executive cabinet included well-known figures such as Democrat Robert Pozen, former vice chairman of Fidelity Investments, and Douglas Foy, who had served as president of the Conservation Law Foundation. They and other cabinet members and advisors were picked more on managerial abilities rather than on party affiliation. Romney gave them broad authority over new what he called "super-secretariats".
Romney and Healey both pledged to forgo their official salaries for the length of their terms.
Fiscal policy
Background During the campaign for the governorship in 2002, Romney proposed a plan that he said would balance the Massachusetts budget without raising taxes. He campaigned that he would be able to save $1 billion (out of a $23 billion budget) by reducing waste, fraud, and mismanagement in the state government, and he railed against the large tax increase that the legislature were negotiating in an attempt to close a looming $2 billion budget deficit. He promised that if elected he would repeal that tax increase within four years without cutting core government services. Surveys suggested that many residents agreed with his antitax stance. Though less than a majority, some 40 percent of the voters voted in favor of abolishing the income tax in a referendum held during the election that carried Romney into office; and in an April 2003 poll of Massachusetts residents, 57 percent said Romney should not consider raising taxes as part of his plan to balance the budget.
Upon entering office, Romney found that the emergency spending cuts and tax increase that the legislature had enacted under his predecessor, Jane Swift, months earlier had proven insufficient. He faced an immediate budget shortfall for the current fiscal year estimated to be between $450 million and $650 million, and a deficit for the following year initially projected to be $3 billion, although outside analysts and the state Department of Revenue said that that projection was too high, as it was based, they said, on faulty revenue predictions.
Emergency budget cuts Massachusetts law required that all state budgets be balanced, and the current fiscal year was already more than halfway over when Romney assumed office (Massachusetts' fiscal year begins July 1 of the preceding calendar year). To close the deficit, he asked for, and was granted by the state legislature, emergency powers (under the existing Section "9C" authority in state law) to make unilateral cuts in the fiscal year 2003 budget.
Romney's initial emergency budget proposal for the fiscal year 2003 called for $343 million in immediate funding cuts, necessitating layoffs of state employees and cuts in aid to cities and towns for public safety and education. He explained in a televised address, "There's no time to restructure state government or remake state programs. On such an emergency timetable, there's just time for cuts." He also proposed cuts in state expenditures for Medicaid, the government program providing health care for the poorest state residents. The cuts included caps in payments to medical providers (one example being through limiting payments for hospital stays to 20 days, no matter how sick the patient), increased stringency of the criteria for Medicaid eligibility, and rationing of access to higher-priced medications for Medicaid patients. Some 36,000 Massachusetts residents lost their Medicaid eligibility. The 2003 emergency budget revision proposal also included funding cuts affecting public colleges and universities, treatment for schizophrenic and other mentally ill patients, and various other social services.
Cuts in funding to local communities Romney's austerity budget for the fiscal year 2004, unveiled just weeks later, included even more substantial cuts in state funding for cities and towns. The final budget passed by the legislature (after overriding Romney's attempt to make still further cuts using line-item vetoes), cut funding for local aid to many communities by as much as 20 percent. Already struggling to absorb funding cuts from the prior year's budget, communities across the state were forced to cut services and hike fees, while laying off teachers, police officers, and other municipal workers.
To compensate for lost revenue from the state government, communities raised local property tax rates, helping drive up the average residential property tax bill by 22 percent over the course of Romney's tenure. In response to complaints about the high residential property taxes, Romney supported and signed into law legislation that allowed communities to shift some of the burden of rising property taxes from residential property owners onto business owners. He also expressed approval for state tax law changes that would permit communities to raise local sales taxes and fees if the local voters agreed.
As with the 2003 emergency revision budget, Medicaid funding, which was responsible for more than one-fourth of all state spending and which had been growing rapidly, was targeted for cuts in the 2004 budget. In addition to proposing reductions in payments to hospitals and nursing homes for care of Medicaid patients, and restrictions on Medicaid patients' access to prescription drugs and eligibility for nursing homes admission, Romney proposed that the low-income Medicaid patients be charged monthly fees for participation in the program, along with co-payments for visits to doctors' offices. The 2004 budget also incorporated further cuts in funding for higher education. Public colleges and universities responded to funding cuts during Romney's tenure by raising mandatory fees 63 percent. Most other areas of state government were budgeted to receive approximately 5 percent less funding on average.
Government restructuring plans Romney's budget proposals included savings he anticipated achieving by restructuring the state government. On announcing his 2004 budget proposal, he said that through improving efficiency by reorganizing the state bureaucracy, along with reducing waste and fraud, he would save $2 billion. Democratic legislators and independent analysts called that estimate vastly overdrawn. The Massachusetts Taxpayer Foundation, a nonpartisan, business-funded organization that monitors state finances, suggested the figure might have been closer to $100 million, and Romney himself was eventually forced to concede that the $2 billion figure could not be reached without new revenue.
The budget proposed requiring state workers to make larger contributions toward the cost of the health insurance they received as an employee benefit. An attempt to persuade the legislature to relax state rules to allow for the outsourcing of state services to private contractors was rebuffed. However, Romney was more successful with efforts to reorganize and consolidate some of the agencies of the state executive branch (such as Health & Human Services), trimming the ranks of state government workers by 2,000 to 3,000 workers with the 2004 budget. Another example of his government restructuring efforts was his plan to reduce state expenditures on legal proceedings by revamping the court system, cutting the numbers of state-employed attorneys, and refusing to increase state payments to attorneys who accepted cases of defendants too poor to afford private attorneys (Massachusetts' court-appointed attorneys were being paid some of the lowest hourly rates in the nation). Romney vetoed a funding bill for payment of attorneys representing the poor, declaring that it was more important for the state to balance its books than to pay attorneys, and that the attorneys should provide the services pro bono. The cuts in payments for representation of the indigent provoked outraged attorneys to strike. The plan to remake the court system was unsuccessful.
Fee increases In addition to spending cuts, Romney and the legislature relied heavily on fee increases to help balance the budgets throughout Romney's term, more aggressively pursuing a revenue source that the legislature had already begun to draw upon to close a deep deficit during the year prior to Romney's election. The state of Massachusetts raised $500 million in new revenue during Romney's first year in office from fees, more than any other state surveyed. Romney proposed 33 new fees along with increases in 57 existing fees, resulting in higher costs for birth certificates, new car purchases, driver's learning permits, firearms permits, professional licenses, and billboards advertising, as well as for many state services. He also increased a state gasoline fee originally intended for cleanup of contamination around underground fuel storage tanks. The two cents per gallon increase made for a total effective state gasoline tax of 23.5 cents per gallon, generating about $60 million per year in additional revenue (surpluses of $40 million over the costs of the cleanup program). Opponents said many of the fees posed a hardship on those who could least afford them, such as fees for the state to provide certification of blindness and a photo identification card for the blind. The proposal also called for a $50 fee for tuberculosis tests and a $400 fee for those who tested positive (the tuberculosis fees were rejected by the legislature).
Critics, including some conservatives, complained that Romney was using these fees increases as a tax increase in disguise after having promised he would not raise taxes. Romney said that the fees were distinct from taxes because fees were charged for particular services provided whereas taxes were assessed more broadly, without expectation of any specific services — although critics noted that this explanation applied to only some of the fees Romney proposed.
Business tax collection increases Having vowed not to raise taxes, Romney found he could not completely close the budget deficits by cutting spending and raising fees alone. He sought additional revenue by pursuing changes in the business tax code to prevent businesses from evading payment of taxes. Businesses called these changes tax increases, but Romney defended them as the elimination of "loopholes." Examples of specific changes and 'loophole' closures included blocking corporations from transferring intellectual property assets to shell companies in states with lower corporate tax rates, preventing banks and some corporations from avoiding taxes through paper restructurings, eliminating tax breaks for direct mail advertising, and taxing sales of software downloaded over the internet (which had previously gone untaxed) the same as identical software purchased in brick-and-mortar stores. The Romney administration even sought an exemption to avoid having to comply with a federal law passed in 2004 that mandated that states like Massachusetts lower their corporate tax rates.