Massachusetts tax revenues plummeted in April, dropping more than 50 percent below what the state collected at this time a year ago, in an unnerving sign of the grim fiscal reality wrought by the pandemic.
The state Department of Revenue reported Tuesday that it collected $1.98 billion in taxes last month, more than $2.1 billion below what was projected and less than half of the $4.32 billion it collected in April 2019.
April is typically the biggest tax month of the year, fueled by the state’s April 15 deadline for filing tax returns. But as officials scrambled to ease the burden on taxpayers, the state in March announced it would shift the deadline to July 15, potentially diverting huge chunks of revenue it would otherwise collect to later in the year.
Geoffrey Snyder, the state’s revenue commissioner, attributed the drop, in part, to adjusting that and other tax deadlines and a dramatic shortfall in non-withheld income tax. The Department of Revenue received 24 percent fewer income tax returns through April 30 than in the same period last year.
And sales tax revenue dipped 23 percent below projections, reflecting a reluctance by people worried about losing jobs — or who have already lost them — to make purchases, as well as the closing of thousands of retail businesses by order of Governor Charlie Baker.
Evan Horowitz, executive director of the nonpartisan Center for State Policy Analysis at Tufts University, said the vast majority of the shortfall appears tied to the deferral of tax payments. But the drops in sales tax and withholding tax collections, which were 3 percent below projections, are evidence of a slowdown.
“So it begins,” said Michael Goodman, a University of Massachusetts Dartmouth economist. “March and April were dramatically negative months for us. We’ve never seen anything like it, for the nation and for the globe.”
The April figures may provide as stark an example as any of the rapid reversal of the state’s financial picture amid the pandemic. A year ago, the state collected north of $1 billion more than it did the previous April, setting itself up for the second straight year with a budget surplus and the enviable problem of figuring out how to spend it.
Now, nearly one in four Massachusetts workers have already lost their jobs during the coronavirus shutdown, and the state’s economy shrank at a 6.1 percent annualized rate in the first quarter of the year as restaurants, bars, and thousands of other businesses closed, part of the effort to slow COVID-19′s spread.
Economists warned lawmakers and state officials last month that tax revenues could plunge $4.4 billion below past projections for next fiscal year.
Deep spending cuts would hurt. As the state lost billions in revenue in the last financial crisis, funding for the Department of Children and Families, for example, dropped from $837 million in fiscal year 2009 to $737 million by fiscal year 2012.
Those reductions led to heavy caseloads and strained already overworked social workers — challenges that sprang to the forefront years later, when the death of 5-year-old Jeremiah Oliver exposed widespread problems at the agency. (Its budget now stands at nearly $1.06 billion.)
And flagging revenue could upend plans to pour new money into local school districts. The Massachusetts Taxpayers Foundation, a business-backed budget watchdog, suggested this week that lawmakers consider putting off implementing a sweeping school-funding law until fiscal year 2022.
The law, signed with great fanfare last year, promised to pour $1.5 billion in extra money into Massachusetts schools over seven years. But lawmakers and Governor Charlie Baker approved it without a dedicated funding source, meaning the state needs to carve the extra money from its existing budget each year — a task that’s all the more difficult when once-flush revenues are expected to dry up.
The Taxpayers Foundation also warned that the postponed deadline means “some portion” of an expected $9 billion in tax revenue could be pushed into the fiscal year starting in July, putting policy makers into a difficult fiscal juggling act.
The state has safety nets, including newly available federal funds and its own emergency account, known as the Rainy Day fund, which sits at $3.5 billion. But tapping them to balance the books comes with its own risks.
“Over-reliance on federal funds may make fiscal 2021 easier but put the Commonwealth on course for even more painful tax hikes or spending cuts in future fiscal years,” Eileen McAnneny, the foundation’s president, wrote in a letter to state officials and lawmakers.
The same goes for tapping the state’s savings account, she added. “Lawmakers should tread carefully,” McAnneny said.
The state’s unstable financial footing has already thrown funding for a host of Beacon Hill’s priorities out of whack. It’s unclear when the Legislature will produce a budget proposal for the next fiscal year, a months-long process that, in normal times, would have already wrapped up in the House.
Lawmakers had also been tinkering with ideas about how to raise taxes to pour hundreds of millions of dollars into repairing congested highways, upgrading worn-out transit infrastructure, and improving grinding commutes.
But the prospects for a House bill to raise as much as $600 million in new tax revenue, passed just days before Baker declared a state of emergency, are in doubt as questions grow over whether the state should increase taxes as residents’ paychecks disappear.
The House, in its first test of remote voting, is expected on Wednesday to take up a bill that would give the state more flexibility in borrowing more money this fiscal year.
Matt Stout can be reached at firstname.lastname@example.org. Follow him on Twitter @mattpstout.