FY17 revenue gap announcement presents challenge for budget writers

The Baker administration announced today that state tax collections are running at least $320 million below benchmarks for the current fiscal year, and projections for fiscal 2017 could be off by as much as three-quarters of a billion dollars.
 
The administration said tax collections for fiscal 2017 are now likely to run between $450 million and $750 million below the $1.1 billion in projected new revenue that budget writers have been counting on. The grim outlook presents a serious challenge for legislators as they head into the final phase of the state budget-writing process for the fiscal year that begins on July 1.
 
“As the budget process wraps up, it is important for the administration and our partners in the Legislature to remain proactive and make adjustments in spending in line with expected revenues,” Administration and Finance Secretary Kristen Lepore said in a statement.
 
At a State House meeting with local leaders from across the state today, administration officials again expressed confidence that the fiscal 2016 gap can be navigated without layoffs, emergency cuts, or the use of reserve funds.
 
Dominick Ianno, chief of staff for the Executive Office for Administration and Finance, told the Local Government Advisory Commission today that the economy is “not growing maybe as fast as we thought.” He acknowledged that the potential $750 million gap is “a big number.”
 
Both branches of Legislature passed $39.5 billion state budgets that assumed 4.3 percent revenue growth next year, a projection that the administration and legislative leaders agreed to early this year. Now, lawmakers will have to adjust spending to account for the new projections and achieve a balanced budget as required by law.
 
The administration attributed the shortfall to lower investment returns, stock market volatility, and “safe harbor” tax rules, but said income and sales tax collections “remain healthy.”
 
Lepore met with economists and state budget experts last week to examine why tax collections this spring have fallen below expectations.