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Jon Chesto | Chesto Means Business

Coronavirus could cause Mass. lawmakers to rethink the state budget

The projections for a revenue increase in the next fiscal year could be overly rosy

The Massachusetts State House.
The Massachusetts State House.John Tlumacki/Globe Staff/The Boston Globe

The swing from boom times to tough times could be painful on Beacon Hill.

State budget writers had banked on another modest increase in tax revenue — roughly 2.8 percent — to fund government services for the fiscal year that begins on July 1. But the economic impact from the coronavirus epidemic will likely force them to make some new calculations.

The margin for error already seemed slim: The business-backed Massachusetts Taxpayers Foundation issued a report on Wednesday highlighting several uncertain aspects of Governor Charlie Baker’s spending plan for the next fiscal year. MTF said Baker’s plans to accelerate sales tax collections ($237 million in the budget), legalize sports betting ($35 million), and to impose high-cost drug penalties ($19 million) are just three of the items that remain up in the air, awaiting the Legislature’s approval.

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Then there’s that projected revenue increase. The MTF and others had predicted growth of less than 2 percent, before the coronavirus hit. The state government’s estimated 2.8 percent increase in revenue sounds even more optimistic now.

Taxes on sales, meals, autos, and hotel rooms are most likely taking a hit already, though we won’t know the damage for weeks. Those categories together represent roughly one-fourth of the nearly $30 billion in revenue that the state collected last year.

In a protracted slowdown, personal and corporate income taxes could also be significantly affected. And the newly christened bear market could wreck capital gains tax collections.

Senator Michael Rodrigues, the Senate Ways and Means Committee chairman, said he expects a negative fiscal impact from the virus. How negative? That remains to be seen.

The state’s in good fiscal shape now, Rodrigues said, but legislative leaders are definitely concerned about what a virus-induced slowdown will mean for the budget.

Rodrigues points to the fact that revenue through February had exceeded the state’s expectations for this fiscal year, so far, by $176 million. That’s a cushion, but it’s one that could disappear quickly if the bottom falls out of hotel and restaurant revenue. More important, the state has a sizable rainy day fund; the nearly $3.5 billion in the piggy bank may come in handy sooner than anyone at the State House had expected.

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The Senate is assembling a working group to address the coronavirus, to be overseen by Senator Joanne Comerford, cochair of the public health committee. The group’s focus will go well beyond budget issues. But Senator Adam Hinds, revenue committee cochair, said he plans to bring his ideas on the implications for the economy and tax revenue to that group.

The working group also will likely discuss the spending side of the equation. So far, it’s relatively small: Legislative leaders said they plan to approve $15 million to help the Baker administration and local agencies deal with the coronavirus within the next week.

There’s more than enough money in the kitty for that one. But the expenses probably won’t end there. Legislators might be forced to make tough decisions about cuts elsewhere to make the numbers work.

Budget observers see the potential for a cavalcade of expenses if the economy worsens, and the impacts from the virus widen. Marie-Frances Rivera, president of the Massachusetts Budget and Policy Center think tank, said lawmakers should, for example, be ready to help safety-net hospitals — those that have a large number of low-income patients — or displaced workers in sudden need of unemployment payments.

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And Greg Sullivan, research director at the Pioneer Institute, said the MBTA could need a backstop if ridership plummets, and MassHealth might need more money if use of the state-funded insurance program for low-income residents skyrockets. Sullivan also notes that the 20 percent decline in the stock market over the past month makes it harder for the state pension plan to meet its targets ­— another unforeseen expense that might need to be squeezed into next year’s budget.

Sullivan notes that the budget impacts of the virus pale in comparison to public health concerns, particularly if the impact from the virus widens substantially. No one will argue with him there. But Baker and the Legislature do need to balance the state budget — and that could get tougher by the day.

Good thing they have that ace in the hole: the state’s $3.5 billion stabilization fund. A substantial withdrawal hasn’t been made in six years, and recent surpluses have lifted the stockpile to record levels. They call it a rainy day fund for a reason. It might not be pouring yet, but it sure looks dark out there.


Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.