HALFWAY THROUGH the current fiscal year, state tax revenues are barely holding steady compared to last year but falling well short of the projections on which the budget is based, creating a situation where spending will probably have to be pared back.
The Department of Revenue released the disappointing tax numbers at 5:15 p.m. on Thursday. Tax revenues in December were down 2.1 percent compared to December 2022 and 3.5 percent below what was forecast. For the first six months of the fiscal year, revenues were up a tiny 0.3 percent compared to the same period in 2022 but $769 million, or 4.1 percent, lower than what had been forecast.
Doug Howgate, the president of the Massachusetts Taxpayers Foundation, said the numbers suggest to him that it’s time for Gov. Maura Healey to revise downward the tax revenue forecast for this year by about $1 billion and begin to pare back spending using her power to make unilateral cuts.
Healey in the past has resisted the idea of unilaterally cutting spending, saying any shortfall can be managed. She has pointed to the state’s financial situation, with a strong bond rating and a balance in the stabilization fund of more than $8 billion.
Healey’s secretary of administration and finance, Matthew Gorzkowicz, issued a vague statement Thursday about the revenue numbers. “Gov. Healey has directed me to evaluate any and all necessary steps that must be taken to ensure that the FY24 budget can be balanced at the end of the fiscal year,” he said. “In light of revenue collections over the first six months of the fiscal year, we are reviewing all of our options and will present the governor with a plan in short order.”
Howgate advised against tapping the stabilization, or rainy day, fund, because the overall economy remains fairly strong and the funds may be needed if a recession comes along.
Legislative leaders in recent days have sounded a cautious note about the budget situation, saying it’s time for the state to tighten its belt.
The governor has significant power to curb spending, but she is also facing pressure to increase spending in some areas beyond what was budgeted. For example, the state’s emergency shelter system, which is struggling to cope with a large influx of migrants from other countries, was originally budgeted at $325 million, but Healey is currently projecting a year-end cost of $934 million. Healey has said she plans to ask the Legislature for another $224 million this fiscal year, on top of the $250 million the Legislature recently approved.
Healey has proposed tapping a reserve fund containing roughly $700 million in surplus funds from previous years to help cover expected emergency shelter deficits in fiscal 2024 and 2025, but using that money for the shelter system means the funds would not be available for other budget items.
Howgate said part of the problem is that the $41.4 billion tax revenue forecast for the current fiscal year was set in February 2023, before fiscal 2023 ended with the state $605 million short of its benchmark target for that year and before a $1 billion tax relief initiative passed by the Legislature in October started being phased in on January 1.
Howgate said revenue projections were probably unrealistic and now need to be adjusted downward, along with spending. He said the state’s spending plan grew in fiscal 2024 by more than 7 percent, a very large increase that needs to be pared back with just six months left in the year.
Howgate said the state is going through a period of adjustment. Between fiscal 2020 and fiscal 2022, revenues grew by more than 40 percent, and now they are slowing down.
A group representing the state’s chambers of commerce warned in November that the governor and lawmakers need to start reining in spending, which in percentage terms has been far outpacing the growth in inflation. “This approach is not sustainable and not responsible,” the business leaders warned.
