State tax revenues lag, mid-year cuts likely

Gonzalez says collections off $250m


IN LIGHT OF a new dim revenue report for October that shows tax collections now trailing estimates for the year by over $250 million, the Patrick administration said it is increasingly likely that mid-year budget cuts could be required to deal with slow economic growth.

Responding to a report showing October tax revenues fell $162 million below projections, Secretary of Administration and Finance Jay Gonzalez said Monday there is a “much stronger likelihood now that we’re going to decide to make a downward revision and corresponding budget cuts in the near future.”

The revenue report arrived a day before voters head to the polls to decide the outcomes of races across the state. It appears the next Legislature may face midyear budget challenges that lawmakers did not anticipate months ago.

“It’s clear from the results that the rate of economic growth that was projected at the time the tax revenue estimate was developed last December has slowed and we’ve kind of seen this trend over the calendar year and particularly the last few months,” Gonzalez said. “The results are concerning, but we’ve been planning for them.”

The state collected $1.4 billion in tax revenue in October, according to the Department of Revenue. Collections were down $48 million, or 3.3 percent, from October 2011, and trailed budgeted revenue estimates by $162 million.

The poor economic performance for the month put the state $256 million below revenue estimates used to calculate the state’s fiscal 2013 budget just four months into the year. The revenue estimate agreed upon in December by the administration and House and Senate leaders was $22.011 billion.

“October is a relatively small month because no quarterly estimated payments are due for individuals or corporations and it is traditionally the largest corporate and business refund month of the year,” Revenue Commissioner Any Pitter said in a statement.

The state refunded $93 million in income taxes in October, over 30 percent more than last year and $20 million above benchmark. Income tax collections were down 3.5 percent from last year and $94 million below benchmark, while income withholding trailed estimates by $75 million.

Sales tax collections of $440 million were up $13 million, or 3 percent, from last October, but still fell short of estimates by $20 million. And corporate and business tax collections of $8 million were $35 million lower than a year ago and were $47 million below benchmark.

Gonzalez said the administration would need some time to fully review the tax collection data, but said the need to revise revenue estimates downward and make corresponding budget cuts would be “something we need to decide within weeks not months.”

The administration opted against revising budgeted revenues downward in mid-October when Gonzalez also made mention of his concerns over flat tax collections, uncertain economic conditions, and the possibility that the 5.25 percent income tax rate could be reduced to 5.2 percent on Jan. 1, 2013 due to a statutory growth trigger that the Department of Revenue estimates would cut into collections over the second half of fiscal 2013 by $57 million.

Instead, Patrick announced a hiring cap at current full-time employee levels, imposed tighter spending controls, and instructed agencies to begin drafting contingency budget plans in case further cuts became necessary.

Noting that the experience in Massachusetts of a slowing economic recovery is not unlike the broader trends in other states or the country as a whole, Gonzalez said continuing fiscal problems in Europe and uncertainty about the election and how Congress will deal with looming “fiscal cliff” in January have contributed to the slowdown.

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He said businesses are “in a holding pattern right now and not making the types of investment in their businesses they might otherwise make” due to the uncertainly over how and where Congress might make budget cuts.

“While we don’t like the results we see from October, it’s not totally surprising given what we’ve been seeing,” Gonzalez said.