The Massachusetts Budget Picture Is Bad, And Getting Worse

MASSACHUSETTS —Revenue Commissioner Geoffrey Snyder warned state lawmakers that tax collections will be $1.2 billion to $3.6 billion below projections this year, with the higher projection amounting to a 12 percent shortfall.

And those figures represent the tax collection shortfall on the projections lawmakers made after the coronavirus crisis started. When compared to budget projections made before the pandemic, the new revenue shortfall represents a drop between 8.9 and 16.8 percent.

Snyder's projections were delivered at a hearing Wednesday in which several outside experts offered similar warnings. Those economists downplayed better-than-expected revenue during the first three months of the fiscal year that started on July 1, noting that most of those gains came from federal aide, including the temporary expansion of unemployment benefits.

"Most of this improvement is temporary as it’s due largely to unprecedented levels of federal financial assistance," Eileen McAnneny, president of the business-backed Massachusetts Taxpayers Foundation, said.

Key items from Wednesday's hearing:

• State lawmakers blamed some budget problems on a stalemate in Washington over a new, federal stimulus package.
• The state has lost several businesses already and will continue to see more businesses close.
• The state's unemployment rate, which is among the highest nation, is compounding the problem with lower payroll tax collection and less consumer spending, which hurts sales tax collections.
• Some liberal groups are calling on Massachusetts lawmakers to raise taxes on the state's wealthiest residents and most profitable companies.

The Massachusetts Taxpayers Foundation noted federal aide had pumped $15.8 billion into Massachusetts with direct assistance to residents. Some of that money, like unemployment supplements, is taxable by the state. Other money, like the stimulus checks sent out earlier this year, is not taxable but boosted consumer spending and, in turn, helped state sales tax revenue.

Kazim Ozyurt, chief economist at the Department of Revenue, worried that the strong sales tax figures in the first quarter may have come from "pent-up demand" as consumers started spending after businesses were closed for part of March, all of April and most of May.

And despite the $14 billion Massachusetts businesses received from the federal Paycheck Protection Program, the state has continued to have one of the highest unemployment rates in the nation.

The state's unemployment rate is currently 11.2 percent. Snyder said he expects it to be between 8.3 percent and 13.7 percent for the full fiscal year ending June 30, 2021. That would lower payroll tax collections as well as sales tax collections as out-of-work residents cut back on spending.

The state is also expecting more businesses to close. Treasurer Deborah Goldberg estimated that as many as one-in-four retail businesses with liquor licenses, including hotels, restaurants, and liquor stores, may not renew their licenses.

House Ways and Means chairman Aaron Michlewitz and Senate Ways and Means chairman Michael Rodrigues said they were frustrated that efforts for a new federal aide package had stalled in Washington, and that D.C. lawmakers have sent mixed messages about what would be included in future federal stimulus packages.

If federal lawmakers don't pass a new stimulus, it will "have a dramatic negative impact on the Commonwealth’s finances," Michlewitz said.

Marie-Frances Rivera, president of Massachusetts Budget and Policy Center, suggested lawmakers look to raise taxes on the state's wealthiest residents to help plug the revenue hole. The recommendation from Rivera's liberal think tank, was echoed by a coalition of unions who held a rally Wednesday calling on lawmakers to raise corporate taxes.

Dave Copeland writes for Patch and can be reached at dave.copeland@patch.com or by calling 617-433-7851. Follow him on Twitter (@CopeWrites) and Facebook (/copewrites).