Revenue slump clouds state budget picture

The slump in state tax collections over the first half of 2016 made it much harder than expected to close the books on fiscal 2016 and has led to worries about fiscal 2017 just as the new budget year gets underway.
 
Fiscal 2016 finances won’t be finalized until the fall, and a first good look at fiscal 2017 will have to wait until early October, when first quarter tax collections can be analyzed.
 
Concerns about the budget have been increasing even as the state’s economy continues its strong growth, with a low unemployment rate and total employment at an all-time high. According to the July edition of MassBenchmarks, economic growth is expected to continue, although somewhat more slowly, while risks to the pace of growth are expected to increase due to the possibility of both domestic and global economic events.
 
Currently available numbers for fiscal 2016 show tax growth of only 2.2 percent over fiscal 2015, with total collections running nearly $500 million below the $25.4 billion forecast for the year. In July, Revenue Commissioner Michael Heffernan said the below-expectations finish to the year reflected the impact of volatile stock markets on the investment-related parts of the state income tax.
 
Some fiscal 2016 budget features remain in doubt, including the amount of any year-end surplus that could be added to the state’s stabilization fund and used for Community Preservation Act distributions. (Section 159 in the fiscal 2017 budget act would transfer one-half of any fiscal 2016 surplus, up to $10 million, to the Community Preservation Trust Fund for distribution.)
 
The final spending plan for fiscal 2017 approved by the Legislature on June 30 was a pared back version of earlier budget bills due to a more than $600 million reduction in tax projections compared to assumptions that were originally adopted by the governor and Legislature in January. The new lower forecast took into account the weak collections in the spring of 2016, offset in part by the expectation that a slight reduction in the personal income rate, to 5.05 percent, would not be triggered for next Jan. 1.
 
In signing the budget bill on July 8, Gov. Charlie Baker vetoed $256 million in spending to provide room in the budget to cover possible additional revenue losses. Most of the governor’s vetoes were overridden during the final formal sessions of the Legislature in late July, however, including $3.7 million that had been vetoed from the special education “circuit breaker” account and nearly $220,000 that had been trimmed from the two library aid accounts on the Cherry Sheet.