Pandemic, Recession Forecasts Will Jolt State Budget

The Massachusetts State House. (Jesse Costa/WBUR)
The Massachusetts State House. (Jesse Costa/WBUR)

State tax collections in the current fiscal year could fall as much as $500 million below benchmarks due to lost economic activity and the Legislature should act now to prepare for a downturn or the "significant likelihood" of a recession, the Massachusetts Taxpayers Foundation said Tuesday.

Calling on lawmakers to quickly revise revenue assumptions, the business-backed foundation said the impacts of the coronavirus pandemic will add to existing challenges associated with plans to ramp up education spending in a few months and tax law changes already scheduled to take effect.

A tax cut to spur charitable giving will kick in soon and retailers, hit hard by virus impacts, are facing additional increases in the minimum wage. And it's not just tax revenues that are taking a hit: MBTA fare revenues are down due to fewer riders and gaming revenues are suffering due to closed casinos.

As the pandemic unfolds, lawmakers should prioritize emergency response spending to meet the challenges and curtail "non-essential" spending in the fiscal 2020 budget as well as the fiscal 2021 budget that's currently under development, MTF said.

"Public health remains the paramount concern," foundation President Eileen McAnneny said in a statement. "The impact on the Massachusetts economy and the state's finances is unknown at this point but significant. In the coming months and years, the state will be pressured to increase spending to respond to the crisis while revenues decline as a result of dramatically reduced economic activity."

Over the first eight months of fiscal 2020, the state has collected $18.428 billion in tax revenues, which were running running 1%, or $176 million, above the year-to-date benchmark through February and 5.2% above the same period in fiscal 2019. March collections will start reflecting the damage.

The length and depth of a recession "cannot yet be quantified," MTF said, and the impact of fiscal 2021 revenues falling by 3-5% would range from $2 billion to $3 billion.

Separately from MTF, the editorial board of MassBenchmarks reported Tuesday that a global recession is a "virtual certainty" and its depth and length "will be driven by the evolution of the virus which will affect when people can resume their normal activities." Board members reached their conclusion following a recent virtual meeting, its first ever, to honor the need for social distancing due to the growing public health threat presented by COVID-19.

The state has about $3.5 billion built up in its rainy day savings account, a cash stash that was built up in case the state ran into difficulties. Fiscal assistance from the federal government could also help states to deal with the coronavirus fight.

"The state currently has a substantial rainy-day fund which could provide an important source of resources," MassBenchmarks officials wrote in their new report. "But the state government is obliged to balance its budget and significant federal financial support will be essential to minimizing the economic disruption and human suffering associated with this crisis. Of particular importance will be efforts to ensure the continued health of municipal and state bond markets and support for households experiencing income disruption as a result of the pandemic and its aftermath."


In January, the Baker administration and Democratic legislative leaders agreed to base fiscal 2021 budget proposals on the assumption that tax revenues will grow a modest 2.8 %. The agreement came weeks after legislators allocated a $1 billion state budget surplus and it coincided with an announcement that the Baker administration was slightly boosting its revenue base for the fiscal 2020 budget.

The big budgetary decisions will likely be made by Baker, House Speaker Robert DeLeo, Senate President Karen Spilka, Administration and Finance Secretary Michael Heffernan, Senate Ways and Means Chairman Michael Rodrigues and House Ways and Means Chairman Aaron Michlewitz.

In January, Baker proposed a $44.6 billion fiscal 2021 budget that featured big investments in education and public transit. Michlewitz, a North End Democrat, is now under pressure to revise Baker's budget to deal with the changed circumstances.

"Managing the state's finances is a key responsibility for policymakers in normal circumstances," McAnneny said. "In extraordinary times like these, the fiscal decisions made during this time take on heightened importance as they will determine how well the state bounces back from this crisis."



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