BOSTON — State tax collections this fiscal year could grow by as much as 4.8 percent, up from the 3 percent growth rate used by lawmakers and the Patrick administration when they built the $34 billion fiscal 2014 budget, according to a new Department of Revenue estimate.
In testimony prepared for lawmakers who are starting fiscal 2015 budget deliberations, DOR Commissioner Amy Pitter concluded that fiscal 2014 collections may surpass original estimates by between $272 million and $383 million. Administration officials have previously warned that non-tax revenues might miss targets by $150 million.
Tax revenue growth in fiscal 2015 will accelerate to between 4.3 percent and 5.2 percent, according to Pitter’s testimony. Improved economic fundamentals, including the housing market and investment decisions earlier this year in response to federal tax law changes, had caused tax collections to improve “significantly” in fiscal 2013 and over the first five months of fiscal 2014, Pitter reported.
The Beacon Hill Institute at Suffolk University on Wednesday predicted fiscal 2014 state tax collections will grow 5.3 percent and tax receipts in fiscal 2015 will surge by 7.9 percent, driven by growth in personal income.
“Both the U.S. and Massachusetts economies have survived the fiscal cliff and the government shutdown,” institute Director David Tuerck said in a statement. “There is uncertainty at the federal level over the effects of Dodd-Frank, the Affordable Care Act, and eventual tapering of federal reserve policy. But the continued capacity of Massachusetts to outperform the rest of the country bodes well for strong revenue growth.”
The Massachusetts Taxpayers Foundation estimates state tax revenues will grow by 4.7 percent in fiscal 2015, a rate of growth that the foundation said was below the rates of previous economic recoveries. MTF estimates fiscal 2014 tax collections will reach $23.27 billion, or $470 million above the forecast used to build the state budget.
Foundation President Michael Widmer predicted increases in “non-discretionary spending” in areas like employee pensions, debt service and Medicaid, in addition to expanded outlays on transportation, will consume “most” of the $1.1 billion in predicted new tax revenues.
While predicting 53,000 added jobs in fiscal 2014 would be the largest annual jump in employment since 2000 and cause the state jobless rate to fall to 5.8 percent, Widmer also said, “This modest rebound is not likely to turn into the kind of robust economic recovery that we have experienced in the past.”
The state and national economies are slowly recovering from the Great Recession and the nation’s jobless rate of 7 percent has fallen below the Massachusetts unemployment rate of 7.2 percent. According to the U.S. Bureau of Labor Statistics, 29 states in October had lower unemployment rates than Massachusetts.
Senate Ways and Means Committee Chairman Stephen Brewer opened the fiscal 2015 consensus revenue hearing on Wednesday by acknowledging that after the recovery in Massachusetts outpaced most other states, Massachusetts has began to fall back to the pack.
“Our message and our thinking needs to reflect the reality that over the last year many other states have caught up with us in unemployment and moved ahead of us in areas of economic growth,” Brewer said.
The Barre Democrat said it’s not “overly surprising” that other states have begun to improve at a faster clip, nor “does it imply that we have faltered.”
Noting that this is the first consensus revenue hearing he has chaired when the state’s unemployment rate has been higher than the national rate, Brewer said he’s hopeful lawmakers can craft a budget for the next fiscal year to “reverse that trend.”
The hearing will inform lawmakers as they work with Gov. Deval Patrick to agree on a fiscal 2015 tax revenue estimate, which will in turn influence myriad decisions about spending in the fiscal year that starts July 1, 2014.
Under Pitter’s forecast, the Legislature and the Patrick administration would have $993 million to $1.2 billion in new tax collections available for spending next fiscal year.
In a presentation he is delivering this week, Administration and Finance Secretary Glen Shor notes that half the roughly $34 billion budget is consumed by spending on subsidized health care (35 percent) and local aid and education aid (15 percent). About 75 percent of the state budget supports health care, human services and education alone, with another 12 percent allocated for fixed debt service and pension costs. That leaves 13 percent of revenue for all other purposes, including transportation, public safety, housing, labor programs, environmental protection and economic development.
In the presentation, state budget officials also note one-time revenues totaled $752 million in the fiscal 2014 budget, down from $903 million in fiscal 2013.