The hopes for a sharp and immediate economic recovery in Massachusetts are no longer realistic, a leading Beacon Hill fiscal watchdog said Thursday, predicting a long and slow rebound that will strain state resources and delay a full recovery until 2025.
The Massachusetts Taxpayers Foundation on Thursday followed up a paper earlier this month that downgraded its revenue estimates for the fiscal year that begins July 1 with a newly pessimistic outlook on the years to follow as well.
The group said that following the economic downturns in Massachusetts in 2002 and the 2009 it took three years before tax revenues rebounded to their pre-recession levels. The new MTF paper said it is "reasonable" to assume it would take at least as long this time given how steep and widespread the slowdown has been.
"When the potential structural changes to key pillars of the economy are considered, it could take considerably longer for the state to recoup tax revenues lost from this pandemic," the paper concludes.
If tax revenues grew at 6% a year beginning in fiscal 2022, MTF said it would take until fiscal year 2025 for revenue to fully recover, assuming a drop in tax revenues of 20% or more in the near term. That rate of growth would also be one point higher than the average rate of growth over the past decade.
The report said medical and economic experts are no longer predicting a "V" shaped recovery, which would indicate a sharp rebound back to pre-pandemic economic activity. The consensus now, MTF said, is that the recovery will like look more like a "U" or even and "L," and if a second surge of the virus occurs in the fall there could be peaks and valleys like a "W."
The Congressional Budget Office is using a new metaphor - the Nike "Swoosh" — to described what the recovery might look like on a graph.
"To state the implications straightforwardly: the Commonwealth will have limited budgetary flexibility for the next several years as tax revenues slowly rebound, particularly if the demand for safety net services resulting from an ailing economy and an aging population drive up expenditures," MTF said in the report.