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November 3, 2016

Optimism that October surge will put state revenues in the black

Tax collections over the first half of October were up substantially and House budget chief Rep. Brian Dempsey is optimistic that receipts for the full month will push the state's lagging fiscal 2017 tax revenues into the black when compared with budget benchmarks.

The Department of Revenue collected $670 million over the first two weeks in October, up $94 million or 16.2 percent from the same period last year, Revenue Commissioner Michael Heffernan informed legislative leaders in an Oct. 19 letter. Receipts for the full fiscal year through mid-October of $6.85 billion are up $327 million, or 5 percent.

Following a rebound in September, tax revenues over the first three months of the fiscal year were trailing budget benchmarks by only $11 million, and Gov. Charlie Baker, at the urging of legislative leaders, has opted to hold off on making unilateral spending cuts in favor of pursuing other solutions to what his administration estimates is a $294 million budget problem.

"I believe October will put us above that," Dempsey, the House Ways and Means Committee chairman, told the News Service Wednesday during an interview in Haverhill, referring to the state's tax revenue benchmark. "So I think we're in relatively good shape."

Democratic legislative leaders last week urged Baker to delay mid-year budget cuts, and Baker aides last Thursday outlined "alternative measures" his administration would take to close a $294 million deficit without slashing spending four months into the year.

Baker's budget chief Kristen Lepore did not rule out budget cuts or layoffs in the future, but informed House and Senate budget leaders last week that she hoped to address the immediate budget concerns with a mix of new non-tax revenues, voluntary payroll reductions and one-time legal settlements.

Lepore in mid-October lowered revenue estimates for the year by $175 million, citing slower than anticipated sales tax growth, and projected a $294 million budget gap also attributable to underfunding by the Legislature of other accounts in the budget.

The Baker administration in July vetoed $265 million in spending from the fiscal 2017 budget, but watched the Legislature override $231 million with a net effect of $219 million on the budget's bottom line.

In Wednesday's interview, Dempsey focused on revenues rather than spending, although he noted that in response to revenue concerns the $39.25 billion budget for this fiscal year had a lower bottom line than the spending plans initially recommended by Baker, the House and the Senate.

With regard to sales taxes, Dempsey emphasized that they're still growing.

"If you look at sales (taxes), although it's not hitting what the projections were it's still growth of two and a half percent," he said. "We had projected 5 percent ... So there's still growth. It's the level of growth. But what's interesting is that you see corporate (taxes) over-perform. So as much as our sales numbers are less than what we projected our corporate is exceeding our projections. And I'm optimistic that that will continue to bode well for us.

"But I think anecdotally you hear from folks all the time that restaurants are packed, unemployment is down, what's happening with revenues? I think that there's some uncertainty in the climate with respect to the election and I think folks are holding off on maybe some of the larger decisions."

Sales and use taxes so far this fiscal year total $1.668 billion and are up $48 million, or 3 percent, according to Department of Revenue data. Corporate tax collections total $630 million so far this fiscal year, up $75 million or 13.6 percent.

October accounts for about 6.5 percent of annual state tax collections, the smallest month for receipts behind February.

Dempsey said caseload-driven accounts, which often require supplemental appropriations because lawmakers fail to adequately budget upfront, should be evaluated in the middle of the fiscal year, which falls in early January. "That's what we've been doing the last few years," he said.

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