FY13 budget-building process under way

State finances are generally improving so far this year, but the federal picture remains cloudy as state and local budget writers begin working on revenue and spending plans for fiscal 2013.

One key concern at this point in the budget development process is what impact any deficit-reduction actions at the federal level in the coming months will have on state and local revenues.

In October, the governor’s chief budget officer increased the state tax forecast for fiscal 2012 by $395 million, to $21 billion, based on economic trends and on actual collections over the first quarter of the year. The revised forecast boosts the expected tax collection growth to $504 million over last year, or about 2.5 percent.

This trend follows a strong finish to fiscal 2011, which enabled the state to end the year with a $463 million surplus.

In December, the top budget officials for the governor and Legislature will convene their annual consensus revenue hearing to take testimony from economists and other fiscal experts, including the Massachusetts Taxpayers Foundation, on the prospects for the Massachusetts economy and state tax collections over the next year. Panelist forecasts for the rest of fiscal 2012 and fiscal 2013 will be used to develop a consensus revenue forecast to be used by the governor in his fiscal 2013 budget recommendation and the House and Senate Ways and Means committees in drafting legislative budget bills.

At the Nov. 15 meeting of the Local Government Advisory Commission – the last LGAC meeting before the governor files his fiscal 2013 budget plan – municipal officials asked that the governor include in the general municipal aid base for next year the $65 million in supplemental aid that was distributed in October. Local officials also asked the administration to increase aid by the same percentage that state tax revenues are expected to grow. Salem Mayor Kim Driscoll made the request to Lt. Gov. Timothy Murray and Jay Gonzalez, the governor’s budget chief, on behalf of the two dozen municipal officials at the meeting.

The 12-member Congressional Supercommittee, charged with finding $1.2 trillion in federal budget deficit reductions over a 10-year period, was unable to reach consensus on a plan. The schedule called for the committee to release a plan by Nov. 23 and for Congress to vote by Dec. 23. Without a deficit-cutting plan, automatic cuts of as much as $1.2 trillion over 10 years will be implemented beginning in mid-January.

Any deficit reduction action by Congress – or automatic cuts – are expected to have a major impact on state and local governments across the nation and will shape what the governor includes in his budget recommendation for fiscal 2013.