State budget officials to take first look at FY18

State budget officers will hold their annual revenue hearing on Dec. 5, at which economists and fiscal experts will provide forecasts for the economy and state tax collections for the rest of this year and take a first look at next year.
 
The hearing comes at a jittery time for state officials, who saw fiscal 2016 tax collections fall nearly $500 million below the forecast as collections slumped markedly over the final six months of the year and ultimately grew by less than 2.5 percent.
 
So far this year, the fiscal 2017 revenue forecast has been reduced twice, by more than $900 million in total, as tax collections have seemed out of sync with a generally healthy state economy. Collections through the end of October were running slightly above the revised forecast for the year, which predicts growth of just over 3 percent.
 
Testimony at the hearing next month will help inform the consensus tax revenue forecast that the governor and House and Senate leaders will use to develop a fiscal 2018 state budget. The governor’s budget recommendation is due to be filed by Jan. 25.
 
The experts testifying at the hearing will have the benefit of seeing economic and tax numbers through November, nearly halfway through the year, but they will have to figure out how to account for the possible impact of new policies in Washington and continued worries about the global economy and a tightening local labor market.
 
The hearing is presided over by the chairs of the House and Senate Ways and Means committees and the governor’s administration and finance secretary. The members of both budget committees also sit on the panel.
 
The tax forecast is an important number for cities and towns because the governor and the Legislature over the past two years have used the rate of growth as the benchmark for increasing the main municipal aid account on the Cherry Sheets.
 
After taking a look at state finances through the first quarter of the year, the governor’s chief budget officer, Administration and Finance Secretary Kristen Lepore, on Oct. 14 projected a fiscal 2017 shortfall of nearly $300 million due mainly to lower-than-expected growth in sales tax collections and several important spending items that were not fully funded in the budget act signed in July, including appropriations for snow and ice operations.
 
At the time, Lepore said her agency had started to make plans for spending reductions in the executive branch budget and other ways to close the gap, if necessary. She and the governor have said that aid to local government and funding for certain unavoidable appropriations such as debt service and pensions would not be cut, and that funding for certain core human services programs would also be off the table.
 
Legislative leaders urged the administration to take a “wait and see” approach before changing the fiscal 2017 budget plan, and the governor has not yet announced any spending cuts.