Who is a member?
Our members are the local governments of Massachusetts and their elected and appointed leadership.
The rejection by voters earlier this month of a plan to cut the sales tax rate by more than half, and a slowly brightening economic picture, have relieved some of the worries about state finances for the rest of this year and should make drafting a state budget for fiscal 2012 a little less difficult.
State budget writers still face a daunting task, however. The state’s revenue shortfall for next year is estimated at about $2 billion, attributable mainly to the loss of temporary state and federal funds that were used to balance the fiscal 2011 budget as well as unavoidable spending increases next year. While economic growth might make the shortfall somewhat smaller, state budget cuts, including in local aid accounts, are still expected.
The state financial outlook has improved markedly, though, from when the fiscal year began on July 1.
The state closed the books on fiscal 2010 at the end of October with a small surplus of $163 million. As a result, the state did not have to withdraw as much as anticipated from the stabilization (“rainy day”) fund. The fiscal 2010 year-end balance in the fund was $670 million.
Over the first third of fiscal 2011, state tax collections were $413 million ahead of the benchmark set in the state budget for the four-month period. Revenue Commissioner Navjeet Bal said the revenue numbers through October “are all signs of a strengthening economy and a return to fiscal stability.”
The October collection report is a turnaround from the reports of one and two years ago, when collections fell below benchmarks as the economic recession took hold and then tightened its grip in Massachusetts and across the nation. In total, state tax collections at the end of fiscal 2010 were $2.2 billion less than collections in fiscal 2008, when they totaled $21 billion.
The defeat of the sales tax ballot question means that state officials do not have to find a way to replace almost $1 billion in revenue during the remainder of fiscal 2011 and an estimated $2.5 billion next year. Voter approval of a ballot proposal to repeal the sales tax on alcoholic beverages, however, will result in the loss of almost $50 million in tax collections this year and about $110 million next year.
Looking to fiscal 2012
Sometime in December, Administration and Finance Secretary Jay Gonzalez, along with the House and Senate budget leaders, will convene their annual state revenue hearing, where economists and finance experts will discuss the prospects for the economy and tax forecasts for the rest of fiscal 2011 and next year. Customarily, the three budget officers reach agreement on a revenue estimate for the next fiscal year, which is used as the basis for the governor’s budget recommendation as well as the House and Senate budget plans.
The governor’s fiscal 2012 budget recommendation is due to be filed by Jan. 26.
In a presentation to municipal officials at the Nov. 9 meeting of the Local Government Advisory Commission, Gonzalez said that next year will be very challenging due to the depletion of about $1.5 billion in federal stimulus money that was used to balance the fiscal 2011 budget. Gonzalez said it is too early to know the extent of the budget gap, which will depend in part on the impact of economic growth on state revenues and on the demands placed on state safety net programs.
In a report released in September, the Massachusetts Taxpayers Foundation pegged the fiscal 2012 structural deficit at $2.1 billion, even after accounting for an increase in tax collections due to a recovering economy. Taxpayers Foundation President Michael Widmer said recently that the deficit might be somewhat smaller due to the better-than-expected state revenue collections, but the gap is still likely to be large enough to result in cuts to state programs next year, including local aid accounts.