Tax revenue forecasts all over map

THE STATE’S TAX REVENUE FORECASTERS are more than $1 billion apart in their projections for fiscal 2018, the largest gap between high and low estimates in the last six years.

At a State House hearing on Monday with lawmakers and Baker administration officials who are trying to develop a consensus revenue estimate for the coming fiscal year, the forecasters gave projections that ranged from a low of $26.64 billion (Massachusetts Taxpayers Foundation) to a high of $27.8 billion (Beacon Hill Institute). In between were estimates from Alan Clayton-Matthews at Northeastern University ($27.267 billion) and two firms retained by the state Revenue Department, Moody’s Economy.com ($27.104 billion) and IHS Markit ($26.81 billion).

The wide-ranging estimates reflect differing views about the international economy and the incoming administration of Donald Trump. Amid great uncertainty, state officials are starting to prepare budgets for fiscal 2018 and struggling to balance revenues and spending. Last year at about this time, House leaders ruled out tax hikes for the current year’s budget. This year they aren’t making a similar pledge, at least for now.

“No decision has been made in terms of additional or other forms of revenue,” House Speaker Robert DeLeo told reporters. “I’m not ruling out anything.”

For more than a year, state officials have been ratcheting back their revenue growth forecasts as taxes have come in to state coffers at a slower-than-expected pace, despite low unemployment and fairly strong economic growth. The Revenue Department is forecasting that revenues for this fiscal year, which is nearly half over, will meet the current benchmark of $26.056 billion. But the Taxpayers Foundation is predicting the final tally will come in $100 million short of that amount. The state’s other forecasters all said revenues would come in higher than the benchmark forecast.

The Taxpayers Foundation, a business-backed fiscal watchdog, said there are no economic indicators suggesting tax revenues will grow faster in the future than they have in the last 11 months. “The foundation advises extreme caution over the next 18 months and urges lawmakers to exercise great restraint in building the budget,” said Eileen McAnneny, president of the foundation. “There are both longstanding causes for concern, such as a shrinking workforce and insufficient reserves in our stabilization fund, and many new ones, such as the lack of clarity on many policy positions from President-elect Trump and ominous signs of a global economic slowdown.”

But David Tuerck of the conservative Beacon Hill Institute was far less pessimistic. “I find nothing but encouraging news in the Trump economic plan,” he said, specifically noting Trump’s pledge to cut corporate tax rates, to repeal the Affordable Care Act, and to eliminate the Obama administration’s plan to reduce carbon emissions from power plants.

Clayton-Matthews, a professor at Northeastern  University, adopted a more middle-of-the-road position. “Economic uncertainty related to the election is still high; but in the short term, there has been a significant shift from predominately downside risk to predominately upside risk,” he said.

State Treasurer Deborah Goldberg urged state lawmakers to continue increasing contributions to the state’s pension fund and the rainy day fund. She said bond rating agencies are monitoring the state’s finances closely and would view any backtracking in both areas negatively.  She noted Standard & Poor’s recently affirmed the state’s AA+ bond rating with a negative outlook, and quoted from the S&P assessment.

“In our view, continued structural imbalance and reduction of reserves could contribute to a downgrade over the next few months to a year if we believe that the financial flexibility is impaired – especially during a period of positive economic growth – and leaves the state less equipped to deal with the next economic downturn,” Standard & Poor’s said in its rating.

Goldberg also delivered more bad news on the revenue front. She predicted Lottery profits, which are passed along to cities and towns, would continue to decline unless the state gambling operation was allowed to expand online. She said the Keno market is “virtually saturated” and “instant tickets are already experiencing a slump”

She said the Lottery is on track to net $968 million in profit this fiscal year, dropping to $965 million in fiscal 2018. She also said the new marijuana legalization law passed by voters last month would require significant regulatory expenditures for which there is currently no revenue source.

House Speaker DeLeo asked economists in September whether they thought lawmakers should raise additional tax revenues, and 16 economists working for colleges, universities, and the Federal Reserve Bank of Boston recommended in October that Beacon Hill should.

A constitutional amendment that would assess a special tax on people earning more than $1 million is making its way through the Legislature and could appear on the ballot in 2018. Other revenue-raising ideas floated at Monday’s hearing included a higher tax on recreational marijuana than the 3.75 percent excise tax rate approved by voters in November, a boost in the gas tax, and a tax on short-term housing rentals.

Michael Goodman, a professor of public policy at UMass Dartmouth, also urged lawmakers to eliminate sales tax holidays and the state’s film tax credit. Goodman noted studies have shown the cost of creating a film job runs into six figures, an expenditure that makes little sense when the unemployment rate of 3.3 percent is at its lowest level since 2001.

“Do we need to pay people to create jobs in this particular environment?” he asked.