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State lands tax windfall: $1.2 billion more than expected

Massachusetts State House.David L Ryan/Globe Staff

We’re in the money.

Massachusetts tax revenues for the fiscal year that ended last week are likely $1.2 billion over estimates, a whopping windfall that will leave policymakers licking their chops as they eye lots more cash to spend.

But all that money won’t be available for favored programs and services. State budget officials said that after accounting for other sources of revenue that came up short, mandatory deposits in the state’s rainy day fund, and areas of the state budget that were underfunded, there may be about $200 million left over.

And while officials in the administration of Governor Charlie Baker were pumped about the good financial news, they also cautioned against irrational exuberance.


“We are pleased that the Commonwealth’s finances are in such a strong position,” said administration and finance secretary Michael J. Heffernan, “but we must remain disciplined and keep future spending in line with recurring revenue.”

One reason for the caution? Much of the unexpected revenue came from volatile sources that see-saw up and down each year, such as capital gains taxes — levies paid on investment profits — officials said. Still, some of the new cash, such as increased corporate taxes, is probably due to underlying economic strength.

Experts on and off Beacon Hill attribute at least part of the windfall, and maybe most of it, to the federal tax overhaul that President Trump pushed through last year.

Which is all the more reason to be careful, they warned.

“Having revenues continue to exceed projections is welcome news,” said Eileen McAnneny, president of the business-backed Massachusetts Taxpayers Foundation. “Because a large portion of this revenue is attributable to federal tax law changes, and may not be recurring, budget makers should still proceed with caution.”

Noah Berger, president of the left-leaning Massachusetts Budget and Policy Center, said it would not be prudent for the state to spend the extra money from last fiscal year in the current one. Rather, he said, it should be spent on one-time capital expenses like roads or schools, or put away in the state’s savings account.


“The big picture is: Most of this is probably temporary,” he said. “It doesn’t really change long-term challenges like making higher education affordable or rebuilding our transportation systems.”

So just how unexpected is this new bonanza, given the historical context?

From the 2016 to the 2017 fiscal year, tax revenue grew about 1 percent.

From the 2017 fiscal year to the one that ended last week, tax revenue is estimated to have grown 8 percent.

The news will ripple through ongoing budget negotiations between the state Senate and the House of Representatives for the current fiscal year.

Baker administration officials said it might make sense to estimate the state will see about $100 million to $200 million more in tax revenue this fiscal year.

And perhaps the good monetary tidings will hurry along the negotiations between the chambers, which have both passed versions of a state spending plan but have not yet been able to reconcile them.

Policymakers have put a temporary budget on the books, so government is not in imminent danger of shutting down. But Massachusetts, a leader in so many areas, is now a laggard, the only state in the whole country that has not enacted a new or revised budget for fiscal 2019.


Joshua Miller can be reached at joshua.miller@globe.com.