Slow revenue growth expected for remainder of FY17 and FY18

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State budget officials on Dec. 5 heard from the commissioner of revenue and other fiscal experts that state tax collections are expected to remain weak over the rest of fiscal 2017 and grow only modestly next year.
The Department of Revenue briefing book released for the consensus revenue hearing at the State House forecasts that taxes could end the current fiscal year below the revised $26.1 billion projection adopted in October, which is roughly $800 million lower than the original forecast for the year.
The Massachusetts Taxpayers Foundation projected that weak tax collections for fiscal 2017 could fall short of the lower October estimate by $100 million.
The consensus revenue hearing is convened annually by the administration and finance secretary and the chairs of the House and Senate Ways and Means committees. The December meeting with economists and fiscal experts facilitates an agreement on a common tax forecast for the upcoming fiscal year to be used by the governor and the Ways and Means committees in their budget recommendations.
Following the revenue hearing early this month, the governor implemented unilateral budget cuts that he first broached in October, when he told legislators that the state was running a shortfall estimated at $294 million. While much of the shortfall was closed using non-tax revenues that were not included in the original budget act and a voluntary state workforce reduction program, the governor on Dec. 6 announced his use of statutory Section 9C authority to reduce state spending to cover a new shortfall estimated at $98 million.
The 9C cuts were spread over almost 150 accounts in the budget and avoided the main municipal and school aid accounts. Among the cuts were dozens of earmarked appropriations, including many for cities and towns to help pay for a wide variety of programs and facilities.
For fiscal 2018, the Department of Revenue forecasts state tax collections to increase within the range of 2.9 percent to 4 percent as the economy grows at a slow pace.
The Massachusetts Taxpayers Foundation forecast shows tax collections growing by 2.65 percent, to $26.6 billion, an increase of $687 million. In written testimony delivered at the hearing, foundation President Eileen McAnneny noted that tax collections grew by only 3.1 percent in fiscal 2016, down from the original estimate of 4.3 percent.
“While the reasons driving this shortfall remain uncertain,” she said, “what is clear is that there are no indicators suggesting that state tax revenues will grow at rates substantially higher than what we have experienced for the past 11 months.
“The foundation advises extreme caution over the next 18 months, and urges lawmakers to exercise great restraint in building the budget,” McAnneny added. “There are both longstanding causes for concern, such as a shrinking workforce and insufficient reserves in our stabilization fund, and many new ones – such as the lack of clarity on many policy positions from President-elect Trump and ominous signs of a global economic slowdown – that necessitate a conservative approach. Given our fragile fiscal state and our unpreparedness for a recession, our expectation is that these pressures will only grow in the coming year.”