The Massachusetts economy, built on its robust ‘ed-med’ and tech sectors, is really feeling the federal policy shifts from the Trump Administration. As lawmakers in Boston continue to calculate the financial hit the state is taking from the funding rollbacks. A Boston University study (from the spring) forecast billions in potential losses for the Commonwealth, but the cuts have been even worse for Massachusetts than even Boston University finance professor Mark Williams thought they'd be.
Carrie Healy, NEPM: Your study identified a ‘policy trifecta’ of immigration crackdowns, tariff hikes and National Institutes of Health or NIH funding cuts. Which of these three policies did you consider to be the single greatest financial danger to the state's economy, and at what potential cost?
Mark T. Williams, Master Lecturer, Finance Department, Boston University: Tariffs in particular look like they were going to be the killer for the Massachusetts economy, reducing GDP (gross domestic product) as much as $25 billion. So, in essence, the tariffs have not been as big of a hit on the economy, but other areas have been.
Massachusetts prides itself on the resilience of the “Eds and Meds” economy, those are the education and medicine sectors. Yet this very strength has also made the state disproportionately vulnerable to the policy shifts from the federal government. Can you break down how this concentration in higher education and life sciences turns into a unique economic risk under the current situation?
In the past, the last two decades, it's almost been recession proof. We've had a very strong educational environment. If you think about the number of schools per capita, we're number one in the country, and that's been consistent in strong and weak economies. Students come, they pay tuition. And some of the largest employers in the Massachusetts economy are universities and colleges.
On the med area, we have not only the best hospitals in the country, many would argue in the world, but we also do a lot of research. We do life sciences and biotech, which provides a lot of money for research, and then also innovation and new job growth. So those have been recession proof.
But yet these new policies, of course, have hit these industries head on. If we look at “Eds and Meds” alone, it's over 20% of our state GDP. So as a result, as those economies, in particular, those two industries get shocked by some of these policies, then it will have ripple effects for the Massachusetts economy.
You projected at the end of April, a 3 to 5% annual decline in the documented immigrant population could result in an $8.6 billion cumulative loss in spending, as well as the loss of over 16,000 entrepreneurs by 2028. So, since H-1B visa holders are highly concentrated in the ed-med sectors, in the STEM companies. What do you forecast as the disproportionate multiplier effect of losing a single H-1B scientist or engineer in the Massachusetts innovation economy?
Well, that is our secret sauce in Massachusetts itself, having STEM sort of highly skilled employees from around the world, and that is, the very best come here. They learn and are educated here. And then they work in, invent, and create many spinoff companies. So, the H-1B visa restrictions that were just put in, I mean, that restriction itself increases the fee from $1,000 to $100,000 for a single H-1B visa. So that's a massive hurdle, and it will reduce the amount of… Right now, we have 12,000 holders of H-1B visas within our biotech and tech community here in Boston, and Massachusetts in general, so that's significant.
And they not only have that job, but they potentially could start a new company and create jobs, and the tax revenue from those jobs and the profits would also be lost.
Yeah, so, the multiplier effect is significant. Especially the fact if we do lose this talent from around the world because they have other options. They can go to Canada, they can go to Australia, they can go to England.
In a sense, innovation is not going away. We have been the innovation hub. And the question is, will we continue to keep that competitive advantage that we've had in the past? So, I would argue we're losing capital. We're losing human capital labor as well as a result of these Washington policies. And so that then undermines the strength of our economy here in the state.
Mark, given the uncertainty of the current economic situation with a government shutdown, but knowing what has happened so far, do you predict a recession in Massachusetts?
Well, we've seen with this tax spending bill that was passed in July in particular, it's going to pull roughly $3.7 billion away from Massachusetts in the next three years. We have a strong economy in Massachusetts, but when you add all of them together, then you have a greater likelihood, a probability of recession.
So, it looks to me that we're probably going to be heading into a recession the third quarter of 2026. And when Massachusetts goes into recession, it typically lasts about 13 months. Unemployment spikes to about 7.4%. We lose about 179,000 jobs. GDP drops by about $25 billion, and tax revenues fall by $1.7 billion. So, if that were to happen, and given our budget, there's got to be many changes happening at the state level to withstand the storm that's coming.
So, are there still proactive steps that lawmakers could take right now to attempt to mitigate the billions of dollars of revenue shortfalls and further insulate the state's competitiveness for more economic tough times ahead?
Yes. One of the recommendations that I made back in April was that we would fill the gap [of the] NIH funding cuts. That gap itself could be filled by the venture capital community. So, it would be a private-public funding. And the governor recently came out and made a similar suggestion that that's really where we should move forward to. So, if we can actually… that is, supplement the reduction in government spending that's happening here locally, that would be a positive.
And then, if we can also stem the flow of the loss of labor and really work on not only supporting our immigrant community, but also making Massachusetts a safe place and a desirable place for international students, not only to go to school here, but to learn here, stay here and work here. That's also extremely important. And that's a longer-term strategy for Massachusetts to undertake.
