Baker ups tax shortfall by $200m

STATE HOUSE NEWS SERVICE

THE APPARENTLY WORSENING TAX REVENUE shortfall facing state budget writers just days before the start of the new fiscal year will be adjusted on Monday by the Baker administration to a range of $650 million to $950 million, in part because of the economic uncertainty caused by Great Britain’s vote to withdraw from the European Union.

The new estimate threatens to eat into the bulk of the new revenue expected for next fiscal year. Senate President Stanley Rosenberg told a group of non-profit leaders on Monday that the revised estimates mean all state budget programs, except for an unspecified “narrow band,” will have to be level-funded or cut.

Gov. Charlie Baker, who discussed the new revenue outlook for fiscal 2017 with House and Senate leaders on Monday afternoon, said that the new range – adjusted upward by $200 million on both the low and high ends – reflects some of the turmoil in the markets caused by the vote last Thursday.

“The reason we’re talking about a range is because, first of all, June’s not over. We have an idea of where we think June is going to be, but we’re not sure about that, and we’re making some assumptions for next year that are based on sort of best guess at this point of time with the notion that Brexit falls into the category of an unknown at this point,” Baker told reporters.

The Baker administration on June 14 pegged the revenue shortfall for fiscal 2017, which begins on Friday, at $450 million to $750 million. The lower estimates were based on volatility and underperformance in the stock market impacting investment related tax collections, officials said.

The governor said the new range takes into account the fact that after the European Union exit vote in Great Britain on Thursday “we’re not exactly sure what that means to all of us.”

Despite the ground seeming to constantly shift underneath the feet of legislative budget negotiators trying to reconcile competing $39.5 billion spending plans before Friday, House Speaker Robert DeLeo said Monday afternoon he was not willing to concede just yet that the budget will be late.

“No, I’d have to say that talking to the chair of Ways and Means today he feels they are making progress,” DeLeo said.

Baker on Monday signed a $5.3 billion interim budget to keep government operating through July in the absence of an approved annual spending bill.

With fiscal year 2016 about to end on Thursday, the stock market impacts on revenue used to fund the current budget have also challenged agency heads. The Baker administration in June projected a $320 million to $370 million shortfall for the current year, and on Monday Baker said he believes the budget is “balanced.”

“People did a tremendous amount of work nipping and tucking all over the place over the course of the last sixty days or so and I feel quite confident that we’ll end the year in balance,” he told reporters.

Judging it too late in the fiscal year to impose emergency cuts, the administration said in June that it had put restrictions on year-end spending, implemented payroll caps and began preparing for transfers to the general budget of unneeded trust fund balances to resolve the revenue shortfall in fiscal 2016.

The administration also said it would seek to accelerate departmental and federal revenue collections, and closely monitor year-end reversions of unspent funds from state agencies that could be put toward any deficit.

“For the most part, we’ve done everything we can to protect what I would describe as core services and I think we’ve done a pretty good job with that,” Baker said.

The governor also tried to paint a sunnier picture of the state’s economy, despite the revenue downturn. He noted the state’s 4.2 percent unemployment rate and the fact that revenues in fiscal 2016 are still expected to climb by 2.5 percent, with another 2.8 percent growth projected in fiscal 2017.

“I’m really glad that over the course of the past eighteen months to two years we’ve worked with the House and Senate to reduce our reliance on capital gains tax revenue to fund our ongoing expenses because that number moves a lot and when it moves a lot it has real consequences,” Baker said.