Final state budget shaved almost $630 million from early revenue projections


BOSTON >> Faced with poor revenue collections in the second half of the last fiscal year, state budget writers and finance officials lowered the tax revenue estimate for fiscal year 2017 by $629 million before enacting the fiscal 2017 budget, a state finance official told investors Wednesday.

Tax collections over the second half of fiscal 2016 continually fell shy of benchmarks, creating uncertainty as the administration and Legislature developed a budget for fiscal 2017.

After originally agreeing to a consensus tax revenue estimate of $26.86 billion for fiscal 2017, the Legislature reduced the estimate by about 2.34 percent to roughly $26.231 billion, according to Jennifer Sullivan, the Executive Office of Administration and Finance's assistant secretary for capital finance. The reduction corresponded to the low-end of revenue shortfall projections forecast by the Baker administration in late June.

"Based on weaker than expected revenue performance in the second half of fiscal 2016, and after consulting with the (Administration and Finance) secretary, (the Department of Revenue) and independent economists, the Legislature reduced its tax revenue estimate at the time of their enactment of the budget," Sullivan said during a conference call for Massachusetts bond holders Wednesday morning.

Total tax collections in fiscal 2016 of $25.267 billion were up by $550 million, or 2.2 percent, from fiscal 2015, but still fell $484 million below the budget benchmark.

The administration in late June estimated that tax revenues for fiscal 2017 could fall $650 million to $950 million short of projections agreed to in January.

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Sullivan said the new tax revenue estimate — $26.231 billion — no longer assumes a reduction in the income tax rate from 5.1 percent to 5.05 percent in January, a change that legislators said would free up $80 million in taxes for spending.

"This estimate assumes that the statutory triggers that would automatically reduce the personal income tax rate on most classes of taxable income to 5.05 percent on Jan. 1, 2017 will not occur," she said.

The new fiscal year, which began July 1, got off to a good start for the state budget picture. DOR announced earlier this month that the state collected more than $1.7 billion in July — 2.1 percent more than in the same month last year and about $7 million above the monthly benchmark that had been adjusted to correspond to the new revenue projection.

While income, corporate and business taxes all beat projections for the month of July, sales and use taxes and withholding collections fell short of their mark.

By Oct. 15, Administration and Finance Secretary Kristen Lepore will have to submit revised tax revenue estimates for fiscal 2017 in accordance with state law, unless she believes there have been no significant changes since the last estimate.

On July 8, Baker issued $264 million in line item vetoes and signed a $38.92 billion fiscal 2017 budget that he said solved for the declining revenue projections, but the Legislature restored $231.6 million in spending through veto override votes leaving what the Massachusetts Taxpayers Foundation pegged as an early $240 million gap in the budget.


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