The economic tsunami from the United Kingdom’s vote to exit from the European Union could soak the Massachusetts state budget, already facing what could be a $750 million gap in the fiscal year that starts next week.
With markets roiled, experts warned of immediate effects on state revenue from the capital gains tax, a levy on investment profits. And they cautioned that the as-yet-unknown ripples from the vote could drag down other state tax revenues, potentially limiting the services the state can provide to its 6.8 million residents.
“The UK’s withdrawal from the EU may send shock waves through the Massachusetts economy in numerous ways that we can’t fully anticipate, with potentially profound effects on the Massachusetts budget, a scenario for which we are ill-prepared,” said Eileen McAnneny, who leads the Massachusetts Taxpayers Foundation.
McAnneny’s business-backed group has for years been pressing budget officials — mostly unsuccessfully — to put more money in the state’s emergency savings account.
She said Friday that the “havoc [the vote] will wreak on global financial markets in the short-term will impact the state’s capital gains tax revenue.”
She also warned that it could affect the amount of corporate taxes the state brings in as “businesses come to grips with this new economic order.”
The administration of Governor Charlie Baker announced earlier this month that even though the state’s economy was humming along, tax revenue for the fiscal year that starts July 1 is expected to be $450 million to $750 million less than projected.
So should the economy feel ripples from the vote across the pond, budget officials in Massachusetts will have less flexibility to deal with further potential reductions in tax revenue.
The state’s nearly $40 billion budget funds everything from Massachusetts’ massive health care program for the poor and disabled, to environmental protection, to state courts and elections, to staffing at the Registry of Motor Vehicles.
Less than a day after the tally, the economic future in Massachusetts and around the world remains largely unknown.
“The Brexit clearly adds another element of uncertainty to our economic future,” said Noah Berger, who has closely followed the state budget for years and is president of the liberal-leaning Massachusetts Budget and Policy Center.
“It’s an important reason to be cautions, but the reality is: We don’t yet know what the long-term effects on the national or world economy are going to be,” Berger said.
Top officials acknowledged the threat of the tumult, but said it’s probably too soon to know the full effect on Massachusetts’ fiscal condition.
Baker’s budget chief, Kristen Lepore, said that while the full consequences of Brexit are not yet clear, “the result underscores the need to manage spending responsibly so we are prepared for unexpected events.”
Representative Brian S. Dempsey, who has led the House Ways and Means Committee since 2011, said it has been his experience that “national and international events can have dramatic impacts on our state’s fiscal condition.”
If nothing else, he said in a statement, “recent news out of Europe and elsewhere introduces a degree of uncertainty, which the markets do not like, but it is probably too soon to speculate on any specific impacts here in the Commonwealth.”
Still, Dempsey said he will work with the Senate and the governor to keep the state “on a fiscally responsible path.”