Massachusetts lawmakers opted to start the fiscal year that began July 1 with an interim budget, claiming that uncertainty over state revenues made it impossible to plan a full year ahead.
They expected to know more about a possible federal aid package by mid-July. But, three months later, they still are waiting on that answer, and the size of the state’s pandemic-induced budget hole remains unclear.
“The next federal package remains critical for bolstering our economy and supporting individuals and communities, and yet the status of that changes literally daily,” said state Sen. Adam Hinds, D-Pittsfield, who chairs the Senate revenue working group.
The $2.2 trillion proposal from the Democrat-led House would cover Massachusetts’ budget gap, Hinds said, yet how close to that number Republicans will be willing to go remains a question mark.
Comments from Republican leaders have done little to provide clarity.
President Donald Trump, in a Tuesday tweet, had appeared to rule out passing a package before the Nov. 3 election, but he later reversed course, calling stimulus talks “very productive” on Thursday before raising his offer to $1.8 trillion Friday.
Senate Majority Leader Mitch McConnell, however, on Friday called a stimulus package “unlikely” before the election.
Whether voters choose Trump or Democrat Joe Biden in November might also have long-term implications for state budgets, which often depend on federal aid.
“It’s a very different picture if Joe Biden is the president and Democrats control the U.S. Senate,” Hinds said. “That’ll indicate longer-term support to states.”
Massachusetts, nevertheless, already has made some assurances. Unrestricted aid to cities and towns will be funded at least as high as last year’s levels, and Chapter 70 school aid will increase by at least $107 million to account for inflation, lawmakers and the Baker administration agreed in July.
“I think it stabilizes the municipalities’ budgets, but we still have a big hole to fill,” said state Rep. William “Smitty” Pignatelli, D-Lenox.
Budget forecasters at a Wednesday roundtable projected that the state would collect $25.92 billion to $29.8 billion in taxes this fiscal year, well short of the $31.15 billion estimate Gov. Charlie Baker and Statehouse lawmakers agreed to in January. The state took in $29.60 billion the previous fiscal year.
Those projections indicate a gap of up to $5.23 billion, reigniting an age-old debate over whether governments should respond to downturns by raising taxes or cutting spending.
Proponents of tax hikes say spending cuts are harmful to economic recovery, while those who favor spending cuts say taxes hurt people who already are struggling.
During the Great Recession, Massachusetts raised its sales tax to combat a budget shortfall. Sales tax, however, widely is recognized to be regressive, meaning it takes a greater portion of the income of lower earners, and does not seem likely to be considered this year.
State Rep. Tricia Farley-Bouvier, D-Pittsfield, has called for taxes aimed to get corporations and individuals who made money during the pandemic to “pay their fair share.” Such an approach would target businesses that profited without hurting those that lost money, she said.
The Massachusetts High Technology Council, a prominent group backing business interests, has suggested it might support temporary tax increases, although it has wanted against a “tax-first” approach to the budget shortfall.
Yet, the budget picture is subject to change with the status of the pandemic, and many expect the recession to last beyond this year. It likely won’t be until lawmakers get a better sense of what they’re working with before we start to see what strategies they’ll take.
“We keep reiterating the phrase that ‘everything’s on the table,’” Hinds said.