Projected Massachusetts tax revenue growth set at 3.5% despite pandemic

BOSTON — Secretary of Administration and Finance Michael J. Heffernan, Senate Ways and Means Chair Michael J. Rodrigues, and House Ways and Means Chair Aaron Michlewitz Friday announced a consensus revenue forecast for Fiscal Year 2022 (FY22) of $30.120 billion, representing 3.5% growth in state tax revenue over adjusted Fiscal Year 2021 (FY21) projected revenue of $29.090 billion.

The adjusted FY21 revenue collections estimate incorporates a $700 million upgrade of projected state tax revenues announced by Secretary Heffernan Friday, which is based upon current year-to-date revenues and economic data.

The consensus revenue forecast is the basis on which the Baker-Polito Administration, the House, and the Senate will build their respective FY22 budget recommendations.

Pursuant to Section 5B of Chapter 29 of the General Laws, the three officials above convene every year to establish a joint revenue forecast by January 15th. In addition to conferring with each other, the Secretary and Chairs held a public hearing on December 15, 2020 to receive testimony from the Department of Revenue, the State Treasurer’s Office, the Public Employee Retirement Administration Commission, and independent, local economists from area foundations and universities on tax revenue.

“The consensus revenue forecast for Fiscal Year 2022 is consistent with the expert testimony offered in December and importantly accounts for updated revenue trends in the current fiscal year,” said Secretary of Administration and Finance Michael J. Heffernan. “We appreciate the consistent and thoughtful collaboration of our colleagues in the House and Senate Ways and Means Offices, and look forward to developing spending plans for Fiscal Year 2022 which continue to protect essential government services, fund critical priorities, and maintain financial discipline and responsibility.”

“We have worked diligently with our partners in the Administration and the House throughout this pandemic, and the consensus revenue agreement reached (Friday) for Fiscal Year 2022 reflects our continued partnership to ensure our Commonwealth remains in sound fiscal health,” said Senate Committee on Ways and Means Chair Michael J. Rodrigues (D-Westport). “As we develop a budget for Fiscal Year 2022, we will continue to closely monitor tax collections, weigh the fiscal implications of COVID-19, and strive to put forward a budget that maintains fiscal responsibility and protects core essential services for our most vulnerable populations, while building an equitable economic recovery for all.”

“After a tumultuous budget cycle over the last few months, this consensus revenue agreement for Fiscal Year 2022 is a modest and responsible forecast that will allow the Commonwealth to continue to provide the services our constituents deserve, while at the same time preserving our fiscal health. Despite the pandemic, our revenue intake continues to be better than anticipated, proving the continued resiliency of the Commonwealth’s economy,” said House Committee on Ways and Means Chair Representative Aaron Michlewitz (D-Boston). “I want to thank Chair Rodrigues and Secretary Heffernan for their continued partnership in these challenging times.”

Additional details:

•Of the forecasted $30.120 billion in FY22 state tax revenues, an estimated $1.516 billion is projected to be capital gains tax revenue, of which $165 million will be transferred to the Stabilization Fund per statute and other long term liability funds for pension and retiree health insurance costs ($16 million).
•The agreement also includes the following statutorily required off-budget transfers that are mandated by current law:
•$3.415 billion transferred to the pension fund, a $300 million increase over the FY21 contribution, which keeps the Commonwealth on schedule to fully fund its pension liability by 2036
•$1.174 billion for the Massachusetts Bay Transportation Authority (MBTA)
•$1.014 billion for the Massachusetts School Building Authority (MSBA)
•$25 million for the Workforce Training Fund

After $5.628 billion in off-budget transfers, the Secretary and Committee Chairs agree that $24.327 billion will be the maximum amount of tax revenue available for the budget in FY22, absent statutory changes.

M.G.L. Chapter 29 Section 7H ½ requires the Secretary and the House and Senate Committees on Ways and Means to jointly develop a potential gross state product (PGSP) growth benchmark for the ensuing calendar year. The PGSP growth benchmark is used by the Health Policy Commission to establish the Commonwealth’s health care cost growth benchmark. The three bodies have reached an agreement that the PGSP figure for calendar year 2021 will remain 3.6%. PGSP is a measure of the “full employment” output of the Commonwealth’s economy and reflects long-term trends in the economy rather than fluctuations due to the business cycle and, as a result, is meant to be fairly stable from year to year.