The state is putting some decent cash into its rainy day fund. Finally
And now, for some good news.
Massachusetts infused its rainy day fund with a whopping $322 million on Thursday, boosting a key fiscal reserve and helping solidify the state’s creditworthiness, just a year after a national bond-rating agency slapped Massachusetts with a downgrade.
The new deposit boosts the emergency savings account to a total of $1.6 billion, money meant to help protect schools, public safety, housing and food for the poor, and other core state-funded services when the economy inevitably tanks and state revenues plummet.
“It’s a great development,” said Eileen McAnneny, president of the business-backed Massachusetts Taxpayers Foundation.
“We need to replenish the stabilization fund because it will provide the cushion we need for the next economic downturn,” she said, using the formal name for the rainy day account.
Under state law, revenue from capital gains taxes — levies on investment profits — over a certain threshold are automatically socked away in the savings account. On Thursday, the state revenue commissioner announced that for the first 11 months of the fiscal year, through May 31, capital gains income was $322 million higher than that threshold.
For context, at the beginning of this fiscal year, Beacon Hill leaders expected only a $50 million deposit in the account.
Capital gains revenues are very volatile, and there’s no sure way to know why people cash out profits at one point instead of another. But some specialists think the federal tax overhaul last year is one major reason why Massachusetts is seeing this uptick.
Whatever the cause, the boost for the stabilization fund is a positive development for Governor Charlie Baker. His aides said they were happy about the transfer and noted the fund has grown more than 40 percent under the Republican’s watch.
“This significant deposit into the stabilization fund is exciting news for the Commonwealth and taxpayers,” said Michael J. Heffernan, Baker’s budget chief. “The administration’s goal for the past three years has been to restore structural balance in our state budget so when the Commonwealth makes a meaningful deposit into the stabilization fund, it will remain there until needed for true emergency purposes.”
Baker has framed himself as a solid steward of the state’s finances but described last year’s downgrade as a “wake-up call.”
In June 2017, S&P Global Ratings knocked back the state’s rating one notch, to the third-highest tier, because Beacon Hill leaders had failed to replenish the state’s rainy day fund as promised.
“Despite above-national average economic growth through a prolonged period of economic expansion, the state has not demonstrated a commitment to its adopted budget reserve policies,” the rating agency wrote at the time.
To deal with gaps in the state’s operating budget, Baker proposed and the Democratic-controlled Legislature passed budgets that diverted capital gains revenue meant for the rainy day fund to pay for the costs of everyday government.
But there will be a significant increase in the account this fiscal year, which ends Saturday, and that’s making a lot of top officials smile.
“A substantial deposit into the stabilization fund is always good news,” Treasurer Deborah B. Goldberg said. “The rating agencies have urged us to put more in our reserves, in order to maintain our strong rating, and this is an example of the Commonwealth following through.”
Senator Karen E. Spilka, chairwoman of the Senate’s budget-writing committee, said the transfer is “great news as we continue our efforts to build up our rainy day fund, an important financial safety net in case of future challenges.”
And Thomas G. Shack III, the state comptroller, said he’s grateful to Beacon Hill policymakers for expanding the stabilization fund. “We’re very happy to see the fiscal discipline necessary to stregthen the state’s fiscal position.”
But one Democratic candidate for governor had a slightly less sanguine view.
“I’m glad Governor Baker is finally starting to follow some of the responsible fiscal policies we put in place during the Patrick administration,” said Jay Gonzalez, a former state budget chief under Deval Patrick.
Gonzalez said Baker’s failure to do so earlier is why he was the first governor in almost 30 years to see a bond rating downgrade and “why, despite being in a sustained period of economic growth, the Commonwealth’s rainy day fund is woefully underfunded to protect vital state programs and services from the next economic downturn.”
So much for the good news.