Tax revenue rises, but state still faces budget deficit
State tax revenues in May offered mixed news, but Massachusetts remains mired in a nearly half-billion budget hole with just four weeks left in the fiscal year.
The state Department of Revenue announced late Monday that year-to-date revenue collection through May was 1.9 percent less than expected, even as the amount of cash the state brought in last month was $30 million, or 1.6 percent, more than anticipated.
“The revenue picture is still challenging, but the May numbers are not what I would call bad news,” said Noah Berger, who has closely followed the state budget for years and is president of the liberal-leaning Massachusetts Budget and Policy Center. “It seems increasingly clear the core of the problem is related to 2016 taxes — and the forward-looking indicators are more positive.”
Berger said a significant portion of the state’s fiscal hole does not appear to be the result of a souring economy, but rather the long-term fiscal challenges that persist despite the economic recovery.
Another factor that is resulting in the less-than-expected revenue, Berger said, is choices people made about taxes last year. For example, some people may be waiting to cash out their stocks in hopes of a more friendly tax picture under the Trump administration and the GOP-held Congress.
But Eileen McAnneny, president of the business-backed Massachusetts Taxpayers Foundation, had a darker take.
“With less than one month remaining in this fiscal year, tax revenues are more precarious than they were this time last year,” she said. Closing the shortfall will be hard and will force lawmakers to cut their spending plan for the fiscal year which starts on July 1, McAnneny continued.
“The warning signs are growing more ominous,” she said.
The new revenue numbers mean authorized spending is on track to exceed actual revenue by $439 million. But it doesn’t necessarily mean actual spending trails that far behind the cash that has come into the Commonwealth’s coffers.
Governor Charlie Baker said his administration had spent the last few months “nipping and tucking” state government in response to less-than-expected revenue.
Baker declined to specify what, exactly, that meant, speaking to reporters alongside the two other members of the powerful troika — Senate President Stanley C. Rosenberg and House Speaker Robert A. DeLeo — that controls how $39 billion of taxpayer money is spent each year.
But the governor indicated agencies may have held off on spending some of the money that the Legislature appropriated for them.
In past budget crunches, the Republican administration has moved money from different accounts and held off on purchases, contracts, and bills due until the next fiscal year.
Asked whether the newest budget crunch changes his mind on taxes, Baker, who won office in 2014 after pledging not to raise them, indicated the answer is no.
He said one of the main reasons tax revenue growth has been relatively small is because Massachusetts workers have seen relatively small increases in personal income.
And, he indicated, state government, just like the citizens it represents, ought to live within its means.
But Rosenberg, an Amherst Democrat, is using this year’s budget crunch to argue that the state must get new revenue.
“I think there’s going to be a lot of pain, again. And I we’re just kicking the can down the road,” he said of the frequent spending cuts to match less-than-expected revenue.
Rosenberg said step one is voters passing the so-called millionaires tax at the ballot next year. That constitutional amendment would impose an additional levy of 4 percent on annual taxable income in excess of $1 million starting in 2019 and be tied to inflation
Another step, Rosenberg said, is scouring the state’s many tax breaks for ones that can be nixed — thus bringing in more cash for essential state services.
He argued that new money to support increased investments in education and transportation is key.