John R. Schneider, MassINC’s executive vice president, offers his take on the governor’s FY 2010 budget:

 Included in the governor’s FY2010 budget is a new approach to managing the state’s capital gains revenue.  The proposal establishes a capital gains revenue holding fund to save for a rainy day — like now — revenue the state collects from capital gains taxes that exceed a quarterly benchmark agreed upon by the governor and the Legislature.  The plan also requires the governor and Legislature to agree to how much money the state can expect to collect in capital gains taxes in a fiscal year as part of the yearly consensus revenue process.
The governor’s proposal addresses a key issue raised in a recent MassINC policy brief, Capital Gains: Avoiding Harm to the State Budget. We document that the state’s reliance on the highly volatile capital gains tax has exacerbated a perilous fiscal situation made even more challenging by the current economic meltdown. 

Here is the main point of our brief:

“Despite the known volatility of capital gains, the Commonwealth’s dependence on them has grown markedly since the beginning of the decade. At the same time, however, our preparedness for managing that volatility has declined. In 1999, Massachusetts was already one of the states most dependent on capital gains revenues, ranking 7th in the nation in the relative importance of capital gains for its state budget. By 2006, the importance of capital gains had grown. Massachusetts is now third most at risk among the 50 states if capital gains income declines.”

It good to see that the governor is considering some reforms as well as new taxes to help the state better manage its fiscal condition.  Although we need every dollar we can get right now, this idea is worth pursuing so that when things get better and we see a growth in capital gains, we can save some for a rainy day (or, like today, a snowstorm). 

John R. Schneider

Executive Vice President