Improving economy expected to help state revenues next year

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At their annual consensus revenue hearing on Dec. 11, state budget writers heard good news from economists and fiscal experts: that a growing national economy and the new transportation finance act are expected to help boost state tax collections this year and next.

Revenues are expected to exceed the target for this year and to grow by more than $1 billion in fiscal 2015, even after accounting for the repeal of a sales tax on software and a reduction in the state’s income tax rate, from 5.25 percent to 5.2 percent, effective Jan. 1.

Panelists also heard that Lottery revenues are expected to surpass expectations again this year.

The annual hearing by the House and Senate Ways and Means committees, presided over by the governor’s chief budget officer, Secretary Glen Shor, and committee chairs Rep. Brian Dempsey and Sen. Stephen Brewer, provides the basis for agreement on tax collection numbers to be used in the governor’s budget recommendation, due to be filed by Jan. 22, and in the House and Senate budget bills, which will be released in April and May, respectively.

State Revenue Commissioner Amy Pitter told panelists that the national economy is expected to improve gradually and that fiscal 2015 tax collections are forecast to grow to between $24.1 billion and $24.4 billion, an increase of $1 billion or more over expected revenues this year.

Commissioner Pitter also told panel members that collections are expected to exceed projections in fiscal 2014 by between $272 million and $373 million, based in part on investment and capital gains activity in early 2013 due to federal tax law changes and better “economic fundamentals,” such as housing activity. She warned the panel, however, that there were risks to the forecast, including possible actions by the federal government and faltering economic performance in other parts of the world, notably Europe.

Michael Widmer, president of the Massachusetts Taxpayers Foundation, told committee members that the foundation expects tax revenues to grow by $1.1 billion in fiscal 2015 (4.7 percent) to $24.4 billion. The increase is based on “continuing the trend of modest growth, yet still below that of previous economic recoveries,” he said.

“Despite an improving economic picture, the 2015 budget will challenge lawmakers once again,” Widmer said. “Increases in largely non-discretionary spending for pensions, debt service, Medicaid and other areas, along with expanded commitments to transportation, will consume most of the $1.1 billion in new tax revenues.”

Widmer also predicted that state tax collections would exceed the forecast for fiscal 2104 by $470 million. Similar to the revenue department forecast, the MTF numbers reflect the revenue reductions due to the software tax repeal ($145 million) and the income tax rate reduction ($65 million).

State Treasurer Steven Grossman and Lottery Commission officials testified at the hearing that Lottery proceeds are expected to exceed the forecast for fiscal 2014 by at least $20 million.

In testimony submitted to the governor’s budget office at a hearing on Dec. 13, the MMA asked that the Cherry Sheet Unrestricted General Government Aid account be increased in fiscal 2015 by at least at the same rate that state tax collections are forecast to grow. The expected growth rate of between 4.3 percent and 5.2 percent would provide an UGGA increase of $40 million-$48 million under this scenario.

Commissioner Pitter and Secretary Shor will both be panelists at a Division of Local Services workshop during the MMA Annual Meeting & Trade Show on Jan. 24 in Boston.
Written by MMA Legislative Director John Robertson