Key state finance review due in October

With below-expectation state revenue numbers undermining spending plans over the past year, the annual October budget review will be a critical waypoint for the future of the fiscal 2017 state budget and the programs that it funds.
 
While tax collections for the first two months of this fiscal year, July and August, tracked behind the benchmark, they represent typically small months for collections and may not indicate any economic or fiscal trend. September is an important month, however, as it includes both personal income and corporate and business quarterly estimated tax payments that are due mid-month. As such, the September receipts will provide the first good look at trends in the economy and state finances for fiscal 2017.
 
Under state law, the governor’s Administration and Finance secretary is required by Oct. 15 each year to submit to the governor and to the House and Senate budget committees updated estimates of revenues available to meet appropriations and other needs in the current fiscal year. In the case of a shortfall, the governor can make unilateral cuts in spending in order the keep the budget balanced.
 
The tax collection report for September, which will be released in early October, will figure heavily in decisions by the governor and his budget officers on the revenue forecast and what steps to take in the case of a continuing shortfall.
 
The slump in state tax collections over the first half of 2016 has made the closeout of fiscal 2016 much harder than was expected. The books on fiscal 2016 won’t be fully closed until later this month or early November. The difficult close to the year has left in doubt some final budget features, including the amount of any year-end surplus that could be used to add to the state’s stabilization fund and to supplement Community Preservation Act distributions. Section 159 in the fiscal 2017 budget act would transfer one-half of any fiscal 2016 surplus, up to $10 million, to the Massachusetts Community Preservation Trust Fund for distribution.
 
The final spending plan for fiscal 2017 approved by the Legislature on June 30 was a pared-back version of earlier budget bills based on a tax projection more than $600 million lower than the forecast originally adopted by the governor and Legislature in January. The new, lower forecast took into account the weak collections in the spring of 2016, offset in part by the expectation that a personal income rate reduction to 5.05 percent would not be triggered next Jan. 1.
 
In signing the budget bill on July 8, the governor vetoed $256 million in spending to provide room in the budget over the rest of the year to cover possible additional revenue losses and to provide funding for several accounts that he said were underfunded, including public counsel services, the emergency assistance program, and funding for the state’s “other post-employment benefits” (OPEB) liability. Most of the governor’s vetoes were overridden during the final formal sessions of the Legislature in late July, including $3.7 million vetoed from the special education “circuit breaker” account and almost $220,000 for the two library aid accounts on the Cherry Sheet.