Increase in Massachusetts state tax revenue predicted

BOSTON — Secretary of Administration and Finance Michael J. Heffernan, Senate Ways and Means Vice Chair Joan B. Lovely (D-Salem), and House Ways and Means Chair Jeffrey Sánchez (D-Jamaica Plain) today announced a consensus revenue forecast for Fiscal Year 2020 (FY20) of $29.299 billion, representing 2.7% growth in state tax revenue over adjusted Fiscal Year 2019 (FY19) projected revenue of $28.529 billion.

The adjusted FY19 revenue collections estimate incorporates a $200 million upgrade of projected state tax revenues announced by Secretary Heffernan today, which is based upon current year-to-date revenues and economic data. Approximately $100 million is estimated to be from capital gains above the annual threshold and would be transferred to the Stabilization Fund, which now stands at more than $2 billion, and other off-budget funds. Both the adjusted FY19 estimate and the FY20 estimate are exclusive of marijuana sales and excise taxes, which are under review.

The consensus revenue forecast is the basis on which the Baker-Polito Administration, the House, and the Senate will build their respective FY20 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 in December 2018 to receive testimony from the Department of Revenue, the State Treasurer’s Office, the Public Employment Retirement Administration Commission, and independent, local economists from area foundations and universities on tax revenue.

“The FY20 forecast reflects modest growth in the Commonwealth’s economy, consistent with testimony we have heard from economic experts,” said Administration and Finance Secretary Michael J. Heffernan. “Reaching agreement on a consensus revenue forecast is a critical first step in developing a fiscally responsible budget for FY20, and I am grateful for the close partnership of the House and Senate Ways and Means leadership and their staff as we worked cooperatively throughout this process.”

“I am pleased that the Senate, House, and Baker-Polito Administration have come to an agreement on a revenue figure for the FY20 budget,” said Senator Joan B. Lovely (D-Salem), Vice Chair of Senate Ways and Means. “Given the Consensus Revenue testimony that forecast more moderate growth for the next fiscal year, I believe that this number will give us a firm foundation on which to craft a budget that makes necessary prudent investments in both the needs of the people of the Commonwealth and the Rainy Day Fund.”

“Through engaging economists and other fiscal experts, we’ve come to a responsible FY20 Consensus Revenue agreement that sets the stage for the next budget process,” said House Committee on Ways and Means Chair Representative Jeffrey Sánchez (D-Jamaica Plain). “Thank you to Secretary Heffernan and Vice Chair Lovely for the thoughtful collaboration in coming to this agreement. It’s through this cooperation that Massachusetts continues its strong economic growth and is why Massachusetts is well positioned for what may lie ahead.”

Additional details:
The consensus revenue estimate for FY20 assumes that another income tax trigger will go into effect January 1, 2020, lowering the state’s personal income tax from 5.05% to 5.00%.

Of the forecasted $29.299 billion in FY20 state tax revenues, an estimated $1.481 billion is projected to be capital gains tax revenue, of which $221 million will be transferred to the Stabilization Fund ($199 million net of transfers to other long term liability funds).

The consensus revenue estimate for FY20 and the adjusted FY19 revenue projection do not include revenue from marijuana sales or excise taxes. With the industry at its beginning stages, the three branches decided to set aside the marijuana forecast so that the Administration, House, and Senate can make independent decisions on marijuana revenue for FY20 based on available information as each goes to print their budget proposals.

The agreement also includes the following statutorily required off-budget transfers that are mandated by current law:

-$2.841 billion transferred to the pension fund, a $233 million increase over the FY19 contribution, which keeps the Commonwealth on schedule to fully fund its pension liability by 2036
-$1.077 billion for the Massachusetts Bay Transportation Authority (MBTA)
-$917 million for the Massachusetts School Building Authority (SBA)
-$25 million for the Workforce Training Fund

After $5.080 billion in off-budget transfers, the Secretary and Committee Chairs agree that $24.219 billion will be the maximum amount of tax revenue available for the budget in FY20, 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 2019 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.
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