Economic growth expected to boost tax collections next year, though modestly

At the “consensus revenue hearing” today, state budget leaders heard a measure of good news from economists and fiscal experts – that a growing national economy is expected to keep state tax collections on track to reach the forecast for fiscal 2015 and that taxes can be expected to grow again next year, although only modestly.
 
The annual hearing held by the House and Senate Ways and Means committees provides the basis for agreement on tax collection numbers for use in the governor’s budget recommendation, which is due to be filed by March 4, and in the House and Senate Ways and Means Committee budgets released in April and May, respectively. The hearing was led by House Ways and Means Committee Chair Rep. Brian Dempsey, newly appointed Senate Ways and Means Chair Sen. Karen Spilka, and the governor’s chief budget officer, Administration and Finance Secretary Kristen Lepore.
 
Andrew Bagley, director of Research and Public Affairs for the Massachusetts Taxpayers Foundation, told the panel that the MTF expects tax collections for fiscal 2015 to end the year slightly higher than the original forecast and that taxes will grow by a modest 4.5 percent in fiscal 2016 to about $25.5 billion, a gain of $1.1 billion. The forecasts for both years assume implementation of income tax rate cuts from 5.2 percent to 5.15 percent, which took effect Jan. 1, and to 5.1 percent effective Jan. 1, 2016.
 
The forecast of tax growth was good news for Gov. Charlie Baker and legislators as they work to close a fiscal 2015 budget shortfall pegged by the governor this week at $765 million. The shortfall has been attributed mainly to underfunded health care accounts in the state budget and to non-tax revenues that are not on track to reach projected levels.
 
At a press conference Tuesday, the governor said that problems with the state’s Health Connector were tied to about $230 million of the shortfall, and the state’s Group Insurance Commission accounted for another $155 million. Departmental revenues were expected to fall short of targets by about $180 million, he said.
 
Panelists at the revenue hearing also heard that while Lottery revenues are expected to meet expectations this year, net revenues are projected to fall by $22 million in fiscal 2016 due to Lottery players choosing higher-payout games, the expected opening of the Plainridge gaming facility early this summer, and other factors. Gaming tax revenue from the slot machines at Plainridge should offset all or a portion of the loss in Lottery revenues, according to Lottery Commission officials.