By Colin A. Young
Having taken in $1.992 billion in tax revenue in August, state tax collections are running $124 million or more than 3 percent ahead of their pace one year ago, the Department of Revenue reported Friday, a potentially promising sign given predictions that receipts could collapse this fiscal year.
Of the $1.992 billion collected last month, all but $13 million will go towards fiscal year 2021. Counting the $1.979 billion that will be recorded in FY 2021, August collections were $7 million less than the August 2019 collections, DOR said. But through two months of FY 2021, DOR said it has collected roughly $4.135 billion, which is $124 million or 3.1 percent more than it had collected during the same period of fiscal 2020.
“Revenues for the month of August were mainly driven by withholding, part of which is attributed to withholding on unemployment insurance benefits, as well as the regular sales tax. These increases were offset by decreases in non-withheld income tax, meals tax, corporate and business taxes, and ‘All Other’ tax,” Revenue Commissioner Geoffrey Snyder said. “August year-to-date total collections were also impacted by corporate and business tax payments attributable to returns due in April, following the waiver of late filing and payment penalties until July 15 for such returns. DOR will continue to monitor revenue collections closely.”
State officials, citing estimates provided while the pandemic has unfolded, have estimated that fiscal 2021 tax collections could fall anywhere from $2 billion to $8 billion below fiscal 2020 levels.
It is unclear how August’s actual collections compare to the expectations of state budget managers in the administration and Legislature. After a December hearing, administration and legislative officials agreed to a projection of $31.15 billion in fiscal 2021 tax revenue, but that outlook has not been officially revised and DOR has not shared its benchmarks for monthly revenue collections.
DOR said that August is “one of the smaller months for revenue collection” because few individual or business taxpayers make significant estimated payments during the month. August has typically provided about 6.7 percent of the state’s annual revenue, though DOR said this August “is different from previous years because of the impact of COVID-19 on tax bases and because revenues collected in this month include deferred payments on personal income tax and corporate excise payments, but exclude some regular sales, meals and room occupancy taxes which are postponed to September.”
Friday’s revenue report from DOR should provide some clarity for Baker administration officials and legislative leaders involved in managing the state’s finances. It comes while Massachusetts has the worst unemployment rate in the nation (16.1 percent) for a second month running.
In late July, revenue officials said incomplete revenue collections for the fiscal year that ended June 30 totaled $27.276 billion, which was $3.014 billion or 9.9 percent below what budget managers were expecting when they crafted the $43.3 billion state budget in early 2019. DOR collected $2.293 billion of fiscal year 2020 revenue in July, plugging some of that gap and potentially reducing the shortfall to roughly $721 million for FY 20. With another $13 million coming from August collections, the shortfall could be reduced to around $708 million.
The state has $3.5 billion stashed away in its rainy day fund that could be used to address budget shortfalls in fiscal year 2020 and beyond, and Beacon Hill has borrowing options at its disposal to address the unusual circumstances. State Treasury officials told the News Service that they have already repaid the $500 million they drew from a $1.75 billion line of credit they established with banks to help with cash flow.
Massachusetts is also without a plan for the fiscal year 2021 budget, which typically would be in place by now. Instead, the state is running on a $16.53 billion interim budget that will keep state government operating through at least the end of October. Lawmakers and administration budget officials have said they need to know what, if any, relief the federal government is going to provide to states before they can craft a budget for the rest of fiscal year 2021.
[Michael P. Norton contributed to this report.]