State expects $1.2B in tax take growth next budget year
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State budget officials project that tax revenues will climb 4.3 percent in the fiscal year that begins on July 1.
State budget officials project that tax revenues will climb 4.3 percent in the fiscal year that begins on July 1, giving the Legislature and Baker administration nearly $26.9 billion to help fund government services and programs next fiscal year, leaders announced on Thursday.
Gov. Charlie Baker's budget chief and the chairs of the House and Senate Ways and Means Committees detailed a finalized revenue accord, which was due by Friday, that estimates $26.86 billion in tax revenues for fiscal 2017, about $1.12 billion more than the estimate being relied upon to finance the current year's budget.
The estimate will serve as the basis for Gov. Charlie Baker's budget, which is due on Jan. 27, and legislative budget-building exercises this spring and summer. Baker, during the 2014 campaign, pledged to increase local aid, including education and unrestricted aid to cities and towns, at the same rate state revenues grow by his second year in office.
Administration and Finance Secretary Kristen Lepore said the estimate "reflects consistent growth in the Massachusetts economy." Economic experts in December testified before Lepore and lawmakers and projected, on average, a 4.1 percent revenue growth rate.
"We are working to ensure that we match this consistent revenue growth with responsible spending. Over the long term we want to have a structurally balanced budget that serves the needs of the Commonwealth at a price we can afford," Lepore said in a statement.
The officials also agreed to a 3.6 percent rate of potential gross state product growth for calendar year 2017, a figure that will be used to set up a health care cost growth benchmark under the 2012 cost containment law.
After sluggish non-tax revenues forced Baker to make $49 million in emergency mid-year budget cuts last week, Lepore also said she was revising upward projected tax revenues for fiscal 2016 by $140 million.
Tax revenues for the current fiscal year are already trending $114 million above benchmarks. But even with the revision and $56 million in newly identified revenue streams - mostly from the federal government - it would appear that Baker's solutions still leave $75 million of a $320 million mid-year budget gap unresolved.
"We are halfway through the fiscal year. There are always moving parts and we will continue to monitor and manage the budget over the next six months," Lepore's chief of staff Dominick Ianno told the New Service when asked about the remaining gap.
The consensus revenue agreement between the administration, House Ways and Means Chairman Brian Dempsey and Senate Ways and Means Chairwoman Karen Spilka assumes $1.484 billion in capital gain taxes, but the announcement did not speak to whether capital gains in excess of $1 billion would be deposited in the state's "rainy day" fund, or again diverted for other budget purposes.
A spokesman for Dempsey confirmed that the agreement did not address the stabilization fund, and Ianno said the administration was still developing its budget plan.
The leaders also agreed on a $1 billion transfer to the Massachusetts Bay Transportation Authority, an $867.1 million transfer to the Massachusetts School Building Authority, $21.4 million to the Workforce Training Fund, and $2.2 billion to the pension fund.
The contribution to the pension fund reflects a 10 percent increase from fiscal 2016 and is consistent with the state's plan to fully fund its pension liability by 2036, officials said.
Dempsey, a Haverhill Democrat, called the recent trends in unemployment and tax revenue collections "encouraging," but struck a note of caution as Beacon Hill prepares to enter budget season.
"[I]t is important to note that FY17 will still be a challenging year and our focus continues to be on fiscally responsible decision making," Dempsey said in a statement.
The Massachusetts Taxpayers Foundation has projected a gap between available revenues and maintenance spending in fiscal 2017 of between $795 million and $1.05 billion. The business-backed budget watchdog group had projected more modest 3.8 percent revenue growth at the hearing in December.
After the off-budget transfers for the MBTA, pensions, and school building, budget leaders said $22.77 billion will be available to build the fiscal 2017 budget, which is supplemented by federal revenues along with non-tax revenues like fees. The Taxpayers Foundation said the increases in transfers would leave the state with $477 million in new tax revenues to build the fiscal 2017 budget.
The agreement factors in another expected decrease in the income tax rate next January to 5.05 percent. The drop just a few weeks ago to 5.1 percent after a series of economic triggers were hit resulted in an expected $152 million decrease in available tax collections in fiscal 2017.
Spilka, an Ashland Democrat, said the "modest" tax revenue growth estimate "will allow us to make targeted investments while working within our financial reality."
In a bulletin released Thursday night, the Taxpayers Foundation noted the importance of the revenue accord. "Taxes comprise more than 60 percent of annual state revenues and even a minor difference in assumed tax growth would have major implications for the budget," the bulletin said. " . . . Without prior agreement on the amount of tax revenues available, it would be nearly impossible to reconcile different budget proposals and finalize the budget in a timely manner."
Since the end of the recession consensus revenue estimates have averaged a 4.5 percent growth assumption, according to the foundation, with the current fiscal 2016 budget assuming growth of 4.8 percent.
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