Three months into the fiscal year and two weeks out from a key deadline, state budget managers got word Tuesday that their estimates for state tax revenue could be too high by more than half a billion dollars and indicated they have “a lot of options” to consider should they opt to make any midyear budget alterations.
The sweeping federal law that President Donald Trump signed on the same day that Gov. Maura Healey signed the annual budget for Massachusetts is projected to take a $650 million bite out of state tax revenues this budget year, Revenue Commissioner Geoffrey Snyder said Tuesday.
Snyder told participants at a rare midyear economic roundtable convened by Administration and Finance Secretary Matthew Gorzkowicz and the co-chairs of the Joint Ways and Means Committee that the One Big Beautiful Bill Act makes more than 100 changes to the federal tax code, about 30 of which trigger an impact to Massachusetts tax collections based on how the state couples its tax rules to the federal code.
“Overall, we project that OBBB will reduce state tax collections by more than $650 million in FY 26,” he said, explaining that the impact of that law on tax revenues was not captured in the state’s fiscal 2026 revenue benchmark because it was signed into law on July 4, the same day that Healey signed the state budget.
The Healey administration and legislative Democrats agreed in January to build the fiscal 2026 budget on a $43.614 billion consensus revenue estimate. They stuck with that estimate through the five-month budget process, which coincided with the advancement of the major federal legislation through Congress.
Gorzkowicz faces an Oct. 15 deadline to either certify that estimate as still sound or revise it. The $650 million amount Snyder mentioned would represent about 1.5% of all the tax revenue the state is expecting to collect this year.
“$650 million at any point in time is significant and daunting, to say the least, for us as budget writers to figure out what to do with,” House Ways and Means Chairman Aaron Michlewitz said.
Gorzkowicz and the Ways and Means chairs were still wading through the implications of the potential revenue hit after the roundtable, and indicated the potential blow could be softened by unallocated funding in the fiscal 2026 budget, decoupling Massachusetts from specific parts of the federal tax code that could lead to revenue reductions, and/or exploring other undefined relief valves.
“This $650 million certainly impacts FY ’26 and impacts that calculations,” Sen. Michael Rodrigues told reporters. “But we’re also seeing tremendous growth on the spending side, mostly around MassHealth and health care in general, [the Group Insurance Commission]. So I think we have some short-term issues to deal with relative to the changes in the federal tax code that we’ll have conversations about.”
Rodrigues said coupling the tax codes makes things simpler for Bay State filers, but can be “dangerous” when the federal government makes big changes that directly affect state revenues.
Gorzkowicz said there’s $860 million in anticipated revenue that remains unspoken for on the state’s balance sheet.
“How it’s used has yet to be decided,” the secretary said. “And there are many competing interests that have to be considered when thinking about how to apply that $860” million.
Michlewitz pointed out that the financial cushion has yet to be collected, telling reporters, “We still have to go through the fiscal year to have an understanding of what the final number will be.”
Michlewitz stressed that “every option’s on the table right now.” He didn’t rule out the possibility of dipping into the state’s bulging rainy day fund, though he did tell reporters, “We have been very careful in that.”
“I do think this is one of the more challenging times that we’ve faced from a fiscal perspective, but we’ve held the line on that throughout all those ups and downs that we’ve had over the last eight years or seven-plus years that me and the chair have worked together, and then the last couple years that we’ve worked with the secretary here,” Michlewitz continued. “But you have to make sure, you have to cover all your bases and make sure that you’re allowing yourself to see what all options are, and that’s certainly, obviously one of them that we’ll have to consider and go through it.”
Rodrigues bristled at the prospect of using the rainy day fund.
“I would be hard-pressed at this time to suggest that we’re going to dip into the Stabilization Fund,” said Rodrigues, who added, “We have other tools that are available to us, so I think we’d look at the other tools first.”
Gorzkowicz, pressed whether he believes midyear budget cuts are more necessary after hearing Tuesday’s testimony, said, “I don’t know.”
“It’s something we’re going to discuss. We’ve got to take a look at the testimony,” Gorzkowicz said. “I think what we’ve heard is there’s a lot of uncertainty, and there’s a lot of things we have to consider in managing that. I think we’ve done a pretty good job collectively of putting ourselves in a position to manage this.”
Before they shipped Healey a compromise $61 billion budget in late June, legislative negotiators built some flexibility into the final plan, aiming to strike a balance between Democrats’ appetite for significant spending and the prospect of federal funding cuts, and then Healey used her veto pen to cut some spending.
The House and Senate trimmed the budget’s bottom line to hundreds of millions of dollars below the versions the branches originally approved, tapped into nearly half a billion dollars more from the state’s surtax on high earners, and left more than $800 million in anticipated revenue unappropriated as a cushion against future impacts.
Healey vetoed $130 million in planned spending, reducing the fiscal 2026 budget to a $60.9 billion outlay that still represents spending growth of more than 5%, and also announced a series of administrative steps meant to signal fiscal prudence. Those included the continuation of an executive branch hiring freeze implemented in May, the cancellation of a 2% raise for thousands of executive branch managers set to start in January, and a hold on paying about $125 million of legislative earmarks.
As she signed the budget, Healey rolled out a companion proposal designed to empower her administration with greater cost-cutting power. That legislation remains before the House Ways and Means Committee three months into the fiscal year.
DOR is due to report by Friday on tax collections for the month of September, which will give policymakers one quarter of actual results to assess as they think about the rest of the budget year. DOR said September is the third or fourth most significant month for state revenue collections.
Fiscal year 2026-to-date tax receipts were up 3.3% over last year through August, but state officials are eyeing potential impacts from federal government priority shifts and stagnant job growth here. The monthly benchmarks that DOR has established for fiscal 2026 anticipate $4.663 billion in September tax revenue, which would be $198 million more than was collected last September. Through Sept. 15, DOR had collected $2.407 billion — $160 million or 6.3% less than collections from the same period in of September 2024.
As of Sept. 25, Snyder said Tuesday, DOR has seen “little to no growth” compared to last September.
Friday is also expected to feature the release of the latest national jobs data from the U.S. Bureau of Labor Statistics. But that agency has said it will “suspend all operations” if Congress and Trump cannot reach a deal to extend federal government funding before the end of Tuesday night.
The contingency plan issued by the U.S. Department of Labor shows that Friday’s jobs reports “will not be released” if the federal government is shut down then and that data collection for future reports will cease. That could delay other economic check-ups, leaving state-level policymakers with a foggier view of economic conditions that influence state finances and budgeting.
