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Massachusetts Taxpayers Foundation Sees State's Finances Worsening

The Massachusetts State House
Jim Levulis

How badly has the shutdown of the economy in Massachusetts hurt the state’s finances?

A Beacon Hill watchdog projects the state is facing a $6 billion revenue shortfall in the fiscal year that starts July 1. The report from the Massachusetts Taxpayers Foundation said Massachusetts will need to find new revenue, or drastically cut spending. WAMC’s Pioneer Valley Bureau Chief Paul Tuthill spoke with Massachusetts Taxpayers Foundation president Eileen McAnneny.

We testified a month ago at a virtual economic summit that budget leaders held. And at that time, we said, we were very transparent about our assumptions and said as some of the underlying data change, then so will our forecast, and that's exactly what's happening. In the interim. There's been a lot more information that's become available.

When you testified at that virtual hearing, what was the estimate, then for the revenue loss?

It was $4.4 billion.

So why have we why have we gone from that to 6 billion?

Because in our estimate, back in April, we had thought that the unemployment would be less than it is in fact today. And we also thought that there would be a V shaped recovery so there was a precipitous drop in economic activity. We thought that there would be, you know, a steep upturn starting in July, and that looks less and less likely.

Is that because of the of the slow phased reopening of the state's economy?

Well, I mean, I think that's one of the reasons that's certainly not the only reason. And so, you know, we've just seen a number of things like the money from the PPP plan, for instance, for small businesses, was slower to get out as a result of just, you know, some issues rolling out that program. Right. So I think everything takes longer than people initially anticipate. And that's part of the issue. Right. And so but I do think that this phased economic opening is playing into that as well.

Where is most of the revenue loss coming from? Is it the income tax, sales, tax or combination Have all of them.

But it's a combination of all of them. But you know, you think about Massachusetts, how our revenue is structured, and Massachusetts relies on income tax disproportionately. So you know, about 56% or so of all tax revenue comes from income, and a big portion of that is from what people call unearned income, but I would call it investment income. So things like interest in dividends and capital gains, and certainly we're going to see, you know, a drop off in that. But as some of it is, just as the economy is slowed, fewer people are working or they're working fewer hours or maybe half time and those types of things that has a direct impact on the amount of tax revenue people collect in. And as far as sales tax, really, these are the only sales activity we're seeing or not shouldn't say the only but the primary is non-taxed goods. So people are buying groceries, they're buying medicine. But those aren't subject to tax. Things like motor vehicles or other big ticket taxable items, we're just not seeing a lot of that.

And so what options are there for the state looking to fiscal year 2021? I mean, we don't even know when we're going to get a budget proposal on Beacon Hill.

The data is changing very quickly. I mean, you think about how much our revenue forecast changed in four weeks. And so you know, I think this is unprecedented and it is tough for budget makers. So you're right, we probably will see some type of interim budget until people feel that they have solid data on which to build a full year budget. But suffice it to say, I think any and all things have to be on the table because this is a sizable revenue gap and you know, we can help. We can use a rainy day fund. That has $3.5 billion. So to the extent we use some of that for fiscal year 2020, it means there's less available for fiscal year 2021. And we anticipate this will be a multiyear problem. So you can't use it all in one year, because you're going to probably need it for a few years. So, rainy day funds can help, I think there’ll the budget cuts, I think they'll be looking for new sources of revenue, I think they're gonna have to think about the Student Opportunity Act and, you know, whether they're able to afford the current schedules for that, or whether that's going to have to be postponed or extended, you know, elongated, I mean, so I think, really, any and all solutions are going to have to be looked at.

Paul Tuthill is WAMC’s Pioneer Valley Bureau Chief. He’s been covering news, everything from politics and government corruption to natural disasters and the arts, in western Massachusetts since 2007. Before joining WAMC, Paul was a reporter and anchor at WRKO in Boston. He was news director for more than a decade at WTAG in Worcester. Paul has won more than two dozen Associated Press Broadcast Awards. He won an Edward R. Murrow award for reporting on veterans’ healthcare for WAMC in 2011. Born and raised in western New York, Paul did his first radio reporting while he was a student at the University of Rochester.
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