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Sales Tax Hit Could Affect Mass. School Construction

Several public school projects around Massachusetts have delayed construction amid the coronavirus pandemic, and the emergency's full financial impact on the state agency that helps funds most of the work remains unclear.

Massachusetts School Building Authority officials said Wednesday that the organization will face some budget strain because of the widespread economic downturn, but MSBA Chief Financial Officer Laura Guadagno believes the agency is well-poised to weather the storm.

"For fiscal year 2020, there should not be too big of an impact because we have a pretty strong cash position. I think that will carry us through fiscal year 2021," she said during a meeting conducted via videoconference. "We're in a pretty strong cash position to at least maintain operations at current level for the near future."

The MSBA, a quasi-public organization that helps fund local and regional school capital projects, has a dedicated funding stream from one penny of the state's 6.25 percent sales tax. Through March of fiscal year 2020, Guadagno said, the MSBA had received about $703 million in that funding, the highest amount over the same span in recent years.

However, March tax revenue figures - which statewide were about $83 million above benchmarks - do not reflect the real impact of non-essential business closures and stay-at-home advisories. April revenues are tumbling, and they will likely remain low in the ensuing months as long as, or potentially even after, the crisis continues.

Economic experts predicted dire financial outcomes during a Tuesday hearing, forecasting tax revenues will plunge by billions of dollars as unemployment soars.

The Massachusetts Taxpayers Foundation estimated sales tax revenues will drop $1.5 billion due to closures in public life and loss of personal income as a result of widespread layoffs and furloughs.

Some MSBA Board members raised concerns Wednesday about the impact that cratering revenues will have on their ability to fund school projects.

"We could be in quite a pinch along with a lot of other agencies," said member Greg Sullivan

"It is obviously very concerning," Guadagno replied.

The MSBA's operating budget is relatively small at $10 million, Guadagno said, compared to more than $600 million on its capital grants side.

Jim MacDonald, the organization's CEO, said the MSBA sent models to the Baker administration reflecting how the authority could be affected by sales tax declines. Federal stimulus money going to municipalities and states as part of the so-called CARES Act could help reimburse already-made expenditures, he said.

However, he said projections will not fully take shape until revenue outlooks are more certain.

"Just looking out for the next three months, four months and beyond, a lot of variables are going to come into play," he said. "When the economy slowly starts to get going, what will it look like? Nobody knows the answer to that question."

MSBA Executive Director Jack McCarthy said the organization will continue to hold board and subcommittee meetings remotely as often as possible so the process can move forward during the pandemic, but he noted that districts will need to cope with any increased project costs on their own.

"When we set a grant and our reimbursement rate at the time of project approval, we cannot later increase that amount," he said. "So as of right this second, the overages that may result from actions that districts take are going to fall on the districts."

More than two dozen MSBA-backed projects in varying stages of the process have paused active work because of the pandemic, MSBA Capital Planning Director Mary Pichetti said.

Some responded to local orders to halt construction because of the highly infectious virus, while others still underway have adjusted their plans because certain workers were ordered by their unions not to report until it is safe to do so.

Gov. Charlie Baker has not issued a statewide ban on construction projects. The city of Boston and other municipalities have issued such bans.

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