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Experts predict plummeting state revenues will put Mass. in dire straits

The Massachusetts State House.
The Massachusetts State House.Blake Nissen/for the Boston Globe

Unemployment rates inching toward 18 percent. Tax revenues dropping by more than $4 billion. A recovery that takes years, not months.

And that’s the more optimistic version.

As the COVID-19 pandemic ransacks the economy, the Baker administration and legislative leaders are weighing several financial scenarios as they guide Massachusetts through this new thicket, each one seemingly more dire — and the recovery more painful — than the last.

What is clear, following hours of testimony officials solicited Tuesday from a panel of economists and analysts, is that Massachusetts, and the country, are staring down a recession that is unprecedented in scope.

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“This is a shock on a scale that we have not seen before,” Michael Goodman, an economist from the University of Massachusetts Dartmouth, told the Legislature’s Ways & Means chairmen and Governor Charlie Baker’s budget secretary during Tuesday’s hearing, held via videoconferencing.

Goodman said that between falling tax revenue and more Medicaid spending, the state could be looking at a $6 billion budget shortfall over a two-year period, suggesting the economic pain from the coronavirus’s spread — and the severe restrictions officials have put in place to slow it — could be harsher than the 2008 financial crisis.

“I do not think there’s any way to get through this in a humane way without a dramatic amount of additional federal assistance to the state,” he said.

Other projections were as grim, if not more so.

Alan Clayton-Matthews, an economist from Northeastern University, said as much as 20 percent of the workforce could be unemployed, furloughed, on leave, or would drop out of the labor force by June, with another 35 percent working from home.

The Massachusetts Taxpayers Foundation, a business-backed budget watchdog, estimated state revenue could plunge $4.4 billion, or 14.1 percent, below past projections for next fiscal year. The state could lose 570,000 jobs by the end of June, pushing the unemployment rate to nearly 18 percent, and while many of those jobs will eventually return, employment levels won’t return to “pre-crisis” levels until 2022, said Eileen McAnneny, the foundation’s president.

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After Senator Michael J. Rodrigues, the chamber’s budget chair, called the predictions “sobering,” McAnneny provided another warning.

“It wasn’t a worst-case scenario,” she said.

The foundation’s projections are based on an economic recovery beginning in July, she said, though that, like other assumptions, is hardly guaranteed.

State officials convened the panel as it tries to craft a budget for the fiscal year beginning in July, a process that is already running behind and whose timeline remains unclear.

Officials already have to “reboot and redo” the state’s consensus revenue figure, Rodrigues said, a reference to the baseline expectation of tax receipt growth that gives a spine to the annual budget.

In one of the few bits of good news legislators received, Dan White, the director of government consulting and fiscal policy research at Moody’s Analytics, said Massachusetts’ economy is probably in a better position than other states’ to weather the downturn, thanks to its reliance on durable sectors like health care and education.

But even those don’t come without risk amid the pandemic. Goodman, the executive director of the Public Policy Center at UMass Dartmouth, said hospitals are not doing elective and other procedures during the pandemic, which could “blow a very large hole in the fiscal model.” Meanwhile, colleges that rely on room-and-board fees and a supply of international students to help fill their dorms could also face challenges.

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“I think you can start to see the kind of concerns that are on the horizon for some of our largest and most stable employers," he said.

Lawmakers had sought input from Eric S. Rosengren, president of the Federal Reserve Bank of Boston, who had been slated to testify last week, when the hearing was originally planned. But it was hastily postponed because legislators were unable to get a live stream of the meeting to work.

Rosengren had a scheduling conflict Tuesday, but Rodrigues plans to stay in contact with Rosengren’s office through the budget process, a spokesman for the Westport Democrat said.

Economists have warned for weeks the state coffers would not be spared in a recession, and while state tax collections from March held steady, officials acknowledged future revenues are unlikely to avoid the drag from scores of businesses closing and record numbers of unemployment claims.

At several points in Tuesday’s hearing, the discussion turned to an alphabet soup of recovery projections that would guide the state’s response: Could it be U-shaped (gradual) or V-shaped (quick and robust)? Even worse, could it be a W — with recovery ebbing into another recession before rebounding — or an L, marked by a steep decline and a sustained period of little to no growth?

State Representative Aaron Michlewitz, the House’s budget chairman, repeatedly asked presenters about how soon signs could emerge about how that recovery could unfold. With caveats aplenty, they suggested it could be within a month, mid-summer, or later.

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“Everything is super uncertain right now,” said William Burke, director of research for the Beacon Hill Institute.

Complicating matters, Michlewitz said, is that the officials themselves “purposely slowed down the economy" in an effort to beat back the public health crisis. The House normally presents and debates its budget proposal in April, but that won’t happen this year, Michlewitz said.

“The virus is going to decide how a lot of this goes,” the North End Democrat said. “And how we control and contain the virus will give us a better determination of how we can proceed.”


Matt Stout can be reached at matt.stout@globe.com. Follow him on Twitter @mattpstout