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State tax revenues continued to crater in May

The State House, where policy makers will have to make especially tough budget decisions this year.
The State House, where policy makers will have to make especially tough budget decisions this year.Craig F. Walker/Globe Staff/The Boston Globe

Another month, another dip in state revenue.

The Department of Revenue reported Wednesday that it collected nearly $1.74 billion in taxes during May, more than 15 percent below what state officials had projected and 13 percent off from the $2 billion it collected in May 2019.

Tax receipts are now $2.25 billion below what the state had projected to have at this point in the fiscal year, which wraps up at the end of this month. Most categories of revenue the state relies upon were down, compared to a year earlier, further solidifying how COVID-19 and the restrictions imposed to slow its spread have undercut the state’s forecasting.

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Tax revenues in April had already plummeted more than 50 percent, compared to a year earlier. Officials said the drop was driven by both the pandemic and the state’s decision to shift its tax-filing deadline to July 15.

The move, officials said, is probably diverting huge chunks of revenue they would otherwise collect to later in the year. May’s revenues are likely to have been “significantly affected,” as well.

Budget watchdogs are warning of more pain to come. The Massachusetts Taxpayers Foundation, in a report released last week, projected it could take five years for revenues to exceed prepandemic levels, and that the state could be looking at revenue that’s $6 billion less than what was expected.

Less money coming in means less money to spend, on everything from education to state parks, health care for the poor, and aid to cities and towns.

Still, some see hopeful signs in the numbers. Evan Horowitz, executive director of the nonpartisan Center for State Policy Analysis at Tufts University, said a silver lining in the recession is that many “are still getting paid, just through the unemployment system.” More than 1.4 million people in Massachusetts have filed for unemployment benefits during the pandemic.

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“The state actually collected more money than expected from income tax withholding, which speaks to the robustness of these replacement paychecks,” he said. “Where tax revenues continue to collapse is on the spending side, as folks just aren’t making the kind of purchases they normally would.”

That, Horowitz said, indicates the recovery could be stronger than some expect. “If people are still earning, but not spending, they’ll have money to burn when stores are safe,” he said.

In the meantime, the state has opted to widely expand its ability to gobble up debt. The state treasurer opened a $1.75 billion line of credit last month the state could tap to help plug shortfalls.

The Legislature also passed, and Governor Charlie Baker signed, a bill that gives Treasurer Deborah B. Goldberg more flexibility to borrow more money in this fiscal year, ending June 30, but without having to pay it back until June 2021.

Representative Aaron Michlewitz, the House budget chairman, said at the time the House debated the bill that the amount the state borrows could be “in the range of $3 billion,” depending on how its finances weather the pandemic.

The state’s crumbling revenues and uncertain path to for recovery have upended the budget process. Neither the House nor the Senate have released a formal spending proposal with just weeks left in the fiscal year, nor is it clear what baseline for tax receipts they’ll use in building one.

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Emergency rules the House passed gives its budget committee until July 1 to report out its version of the budget. But that guidepost offers only a broad sketch of the potential timing.

Still unclear is when the Senate could release its proposal, or whether the chambers will combine their efforts to debate a single piece of legislation. Depending on the path, the House and Senate could also have to reconcile any differences between what they pass, extending the timeline for sending something to Baker’s desk.

Even in flush economic times, the Legislature routinely blows past its deadlines. For each of the last nine years — and this year is likely to be the 10th — lawmakers had to pass a stopgap spending measure to keep state government running.

They didn’t close the books on fiscal year 2019 until nearly six months after it ended, because lawmakers took months to decide on how to spend a $1 billion surplus.


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