Massachusetts remains enmeshed in the most intractable recession in modern memory. More than half the companies recently surveyed by the Federal Reserve Bank of Boston expect to lay off more employees. And this traditionally Democratic state is holding its breath while Gov. William Weld's Republican administration gest set to cut deeper into a thicket of social programs.

Lieut. Gov. Paul Cellucci is one of the architects of the Republicans' plant to resuscitate Massachusetts. In addition to slimming the state's outstanding debt, he is focusing on business incentives and winnowing out any redundancies on the service side.

In an interview last week, Lieut. Gov. Cellucci stressed a new method of determining which social programs should quality for increasingly rare funding: "program budgeting."

Question: What kind of gaps are expected for the 1993 budget?

Anser: We always recognize that the structural gap in our budget will take a couple of years to work through, so we do anticipate that gap in 1993. I think it's a little bit too early to put a number on it yet.

We are shifting our whole budget process to program budgetting. Rather than view it as how much we're going to cut, we want to say, "This is how much we have to spend, how are we going to spend it?" The cabinet and the agency heads are going through that process now.

Until we know a little bit better about the results of program budgeting and the revenue situation, we won't know the size of the gap. Tax revenues have been improving; they're better than what we projected. To some extent it's the result of [a better unemployment rate] than some had projected.

We were estimating revenues conservatively, knowing that it's easier to deal with an unanticipated surplus than an unanticipated shortfall. But we are prepared to deal with it. We are not going to spend money we don't have. I think our track record so far has been pretty good -- bringing that '91 budget in with a surplus -- and we're looking pretty good for '92.

So there's no administration gap estimate as of yet?

It's too early to give you a number. It's going to be a significant amount, but we're prepared to close it. We've already discounted a number of one-timers for the 1993 budget. But as tax revenues have done a little bit better, it has more than offset the loss of those one-timers in 1992's budget.

That's good because to the extent that we don't have to use one-timers in '92, we don't have to then carry the problem over to '93.

Are there any "first-strike" strategies to hit whatever gaps you'll be looking at?

Our first strike is the program budgeting. Program budgeting is going to give us a snapshot of state government in terms of what programs we have, what clients we're serving, and whether or not there's any duplication between agencies. Whatever the gap is, we have to determine what our priorities are.

In effect, we will fund our priorities, and those that aren't priorities may not be funded. Program budgeting teaches agency heads not to think in relative terms to where they were in fiscal 1992; they don't really have a starting point.

A tabula rasa?

It's a modernized or hybrid version of zero-based budgeting. The way the system's always worked here is that you take your budget from last year and you add to it for next year, without any analysis as to what's effective.

We're very big on privatization and efforts to downsize the government. This is going to point out areas where we may be able to do additional privatization and get things off the budget completely.

We want to focus on what state government is buying, is accomplishing, or what services we are providing, rather than what we're not doing. The idea is to get people thinking that you have a fixed dollar amount to spend, so that under each secretariat you prioritize by agency, and then under the agencies you prioritize the services that you're offering. Once we get down to the services that aren't as essential as the others, we're not going to take money out of one priority to fund a lesser priority.

An example is what we did with the general relief program. We looked at it and determined that it had grown beyond its original intent. There was a need to downsize it, and we did that. It's now a program for the elderly, disabled, and children who are not covered by other welfare programs.

What would have been a $240 million program in this fiscal year is going to be about a $160 million program, a significant savings. We want to replicate that process throughout the government. We think this will be a road map to how we close the gap in 1993.

This is going to help us in terms of meeting the gap, but it's also going to help the future of the state government. Bill Weld and I said repeatedly that the government had grown too big.

It'll also point out whether or not our benefit programs are too generous. Should we be more in line with other states or national standards? That's another area where we have some room to maneuver.

We've been one of the more generous states in the county in terms of benefit levels. My view is, if you can do the job with a Chevrolet, why buy a Cadillac?

Let's turn to other issues. Is the administration seriously considering the sale of the turnpike?

We're not seriously considering anything. We're trying to get ourselves in a position of determining what the options are. Goldman Sachs has agreed at no cost to study the turnpike for us. Should it be maintained as an independent authority? Should it be sold? Should it be turned over to the department of public works and become a freeway? How is it going to impact with the third harbor tunnel and the depression of the central artery?

There's a lot of options out there. We've reached no conclusions yet, but certainly we think that privatization or sale is one of the options.

Does the Massachusetts Water Resources Authority need more oversight?

That's a tricky one. I do think there needs to be oversight, but I also recognize that a lot of what they're doing has been pursuant to federal court order. So I'm not sure having a lot more oversight is going to result in any big difference.

The oversight role the federal court is now playing due to the mandate to clean up Boston Harbor is a big factor. There are things we think MWRA could do better, but the federal court is so heavily involved.

Can you help the Boston-area ratepayers facing huge water and sewer bills?

We're going to continue to seek as much in the way of federal funding as we can. The state revolving fund will provide some money. We're trying to get the Legislature to change the percentages so we can help more communities, and a big chunk of that will help MWRA.

The President and the Congress have agreed to $100 million this latest federal fiscal year, and we're going to try to get the President to recommend to do that again in the next federal fiscal year.

Unfortunately, this is one of those areas where the prior administration missed the boat. There were a lot of federal dollars available for these kinds of projects, but they didn't move aggressively to get them. And the people in the MWRA district are playing for the mistake.

We will continue to seek federal funds, but we recognize that we're now asking for special treatment.

Do you support giving budget-cutting powers to the MWRA's advisory board?

That makes some sense because it at least gives the people who are paying the bill greater representation in the decisions. But as a practical matter, given the court mandate, I don't think it's going to make an enormous difference.

The majority of the money that is coming from water and sewer bills is not going into operating costs at MWRA -- which is the only area the advisory board would affect. It's mainly the debt, the bonds that they have to sell for $6 billion worth of pipes and machinery.

They can't legally interfere in all the other things unless they want to go and get a court order.

Will the current local aid requirements, or Question 5, be a hurdle for balancing the 1993 budget?

Not really, because local aid is subject to appropriation. Any initiative petition that involves the expenditure of money is subject to appropriation by the Legislature. We view it as a goal, and we're looking at the local aid thing and we will make some recommendations as part of the 1993 budget process.

But we have to start from scratch. How do we define local aid, how do we distribute it? How do we maximize getting local aid dollars to public education? Question 5 is really not an impediment, but it is a sense of where the voters are and where we want to move things.

But we also want to give cities and towns the ability to control their own destinies. That's why we filed earlier this year and will refile for the next session a whole package of mandate relaxations -- where the state government mandates what local governments must do. We want to let cities and towns ontrol their own destinies.

Are there tangible signs that the state is heading toward economic revival?

Digital Equipment Corp. filed an application with the environmental ageincies to build a plant in Hudson, Mass., where they already have a facility. It will be to manufacture the next generation of chips. Total investment is about $450 million.

We're going to work closely with our environmental agencies to make sure that everything is done quickly. We're optimistic that they will get a green light to build this facility in Massachusetts.

It's another one of the lights at the end of the tunnel -- that a major employer like Digital would invest again in the Commonwealth of Massachusetts. It shows that they certainly have a confidence in the long run in the state, despite some difficult fiscal times now.

Any other lights at the end of the tunnel?

In Worcester, the Norton Co. about a month ago broke ground on a new manufacturing facility. Again, it's a high-tech facility. This is another old Massachusetts company investing in Massachusetts.

And Genzyme Corp, which is a big one because the whole biotech industry is going from R&D into manufacturing. Genzyme a year ago had pretty much made the decision to go to North Carolina to build its manufacturing facility. They have now announced that they will go to Massachusetts.

They are looking at three sites -- Worcester, Cambridge, and Brighton. And that they will build in the commonwealth is another encouraging sign.

What aspects of the state's economy are the weakest, where do the alarm bells go off?

The weakest part of the economy is commercial real estate. We've overbuilt, and this is where the banks have gotten into trouble. It's going to be a matter of time before we can grow out of that problem. It's certainly the area where we're weakest. Time will heal that.

The other area we have to look at is manufacturing. That's why [Digital, Norton, and Genzyme] are so important. Although Massachusetts is becoming more of a service and information systems type of economy, we've got to maintain the manufacturing base. And that's why we're going to be aggressive about that as well.

Is there any way to help the commercial real estate market back on its feet?

I think so. There's not a heck of a lot we can do about the national recession, but I do think we can make sure that things aren't aggravated here in Massachusetts.

The last three years just aggravated things. Raising taxes, borrowing money, not being able to put the brakes on fiscally, it all significantly aggravated the economic downturn in this state. People lost confidence in Massachusetts and the ability of the government to maintain an environment that was conducive to economic activity.

I think we've changed that by brining fiscal stability and by moving through with regulatory relief. There's some positive things we can do with tax credits for jobs, similar to the research and development credits we enacted earlier this year. And the workers compensation reform that we got through the Senate and we're now trying to get through the House.

These kinds of things send a positive message to the business community. They say we are going to have a climate conducive to economic activity.

The other thing we can do is aggressively promote the state, both in the country and internationally. The governor and I can be and will be cheerleaders for Massachusetts, emphasizing the assets of the state. We have the high-tech industries, which employ a highly skilled labor force, for example.

Those are the kinds of things you can do to be pro-active to help Massachusetts recover. And as the national economy improves, we're going to make sure Massachuseets is running with or ahead of it.

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