Metro

Budget analysts predict state tax revenue to grow 3½ percent

State tax revenues will grow at a 3.5 percent clip next fiscal year, state budget managers predicted Friday, signaling that the governor and Legislature could have about $27.6 billion available to spend, along with billions of dollars in federal and nontax revenues, as they begin to shape the fiscal 2019 state budget.

Governor Charlie Baker’s budget chief and the chairs of the House and Senate Ways and Means Committees on Friday detailed a finalized accord on how much tax revenue the state expects to collect in fiscal year 2019, which begins on July 1. Budget watchers also upgraded their expectations for tax revenue in the current fiscal year, upping the projected total revenue by $157 million, to $26.661 billion.

The estimate of $27.594 billion in tax revenues for fiscal 2019 amounts to $933 million more in revenue than the updated projection for the current fiscal year. The projected growth rate will serve as the basis for Baker’s budget, which is due on Jan. 24, and budget-building exercises this spring and summer in the House and Senate. The Republican governor and Democrats in the Legislature faced a Jan. 15 deadline to agree on a tax revenue estimate.

Advertisement

As part of the revenue agreement, the triumvirate of budget officials also announced Friday a $2.609 billion transfer to the pension fund — a $214 million increase over the fiscal 2018 contribution — a $1.032 billion transfer to the MBTA, a transfer of $858.9 million to the Massachusetts School Building Authority, and a $24.1 million transfer to the Workforce Training Fund.

Get Fast Forward in your inbox:
Forget yesterday's news. Get what you need today in this early-morning email.
Thank you for signing up! Sign up for more newsletters here

After a total of $4.612 billion in transfers, the maximum amount of tax revenue available for the fiscal 2019 budget will be $22.982 billion, the officials agreed. The state budget, which totals about $39.4 billion this fiscal year, is supplemented by federal revenues along with non-tax revenues like fees.

The 3.5 percent growth figure, the budget managers said, assumes the state income tax rate will drop from 5.1 percent to 5.05 percent on Jan. 1, 2019, which DOR has previously said would result in a roughly $83 million reduction in state revenue over the last six months of fiscal 2019. Recent economic growth was not significant enough to statutorily trigger an income tax cut on Jan. 1, 2017 or Jan. 1, 2018.

The agreement also assumes $1.3 billion in capital gain taxes and assumes a transfer of $88 million of capital gains taxes to the state’s stabilization fund.

House Ways and Means Chairman Jeffrey Sánchez said the 3.5 percent growth rate “reflects the cautious optimism and realities of current economic trends.”

Advertisement

“This is a number that balances the uncertainty at the federal level and elsewhere with the growth we are experiencing in Massachusetts,” he said in a statement.

With less than two weeks until Baker is scheduled to unveil his fourth budget as governor and launch a budget process that will last into the summer, there remains significant uncertainty about how state finances will be affected by recent federal tax code changes and proposals to alter state tax policy.