Public Policy Updates: FY23 Joint Revenue Hearing

On Tuesday, December 21, the chairs of the Joint Committee on Ways and Means, together with Secretary of Administration and Finance Michael Heffernan, held the annual Joint Revenue hearing to discuss tax revenue forecasts for the coming fiscal year 2023.

While the hearing appeared to have begun as scheduled at 10 am, public access was only provided at 10:20, midway through the testimony by Department of Revenue Commissioner Geoffrey Snyder. Snyder’s forecast for the current fiscal year (FY22, ending in June) was between $35.726 billion to $36.623 billion, an increase of $1.325 billion to $2.222 billion from the projections this time last year.

Looking ahead to FY23, Snyder said DOR forecasts between $36.484 billion and $37.684 billion, between 2.1% and 2.9% higher than their now-revised projection for the current year. Snyder noted that there was considerable uncertainty about the sustainability of current trends going forward, leading to likewise considerable uncertainty in the projections given.

Testimony was next given by Eileen McAnneny, President of the Mass Taxpayers Foundation. Noting how difficult it has been to predict revenue, McAnneny likened it to a roller-coaster, and she said “I think we have one more loop.” She noted the “startling” growth in revenue these past years, attributing it in large part to federal aid. She predicted that growth would slow this coming year, with 1.1% in growth for FY23, or revenue of $37.6B. She said that labor force issues will take a firmer hold, with Baby Boomers continue to retire. Massachusetts will, she said, be able to offset some of this with “higher productivity per worker.” As “highly educated workers tend to be more productive,” the state should invest in workforce development. She also warned of geopolitical risks, including more destructive storms due to climate change, cyber threats, and the current divisive national political climate. She closed by noting that Moody’s had noted that the failure to pass the federal Build Back Better bill could slow the economic recovery.

The testimony of Alan Clayton-Matthews of Northeastern University followed, who opened by saying, “I have a different outlook.” He projected $38.301B for this current fiscal year (FY22), which would be 12.2% above FY21, with FY23 at $40.795B, 6.5% over the current year’s projection. He said that the federal stimulus has largely achieved its objective of buffering the economy. He projects inflation to be subsiding to 3.8% for this fiscal year, and 2.3% next fiscal year. His projections are based on a strong stock market which will continue to spur capital gains, which he argued are much more predictable than usually commented upon.

Michael Goodman of UMass Dartmouth spoke next, noting that supply chains, labor supply, and continuing pandemic have been creating headwinds for the economic recovery. Despite this and a constrained job market, the overall job market and underlying economy have been pretty strong, Goodman said, with  “significant wage growth,” particularly at lower end, and even representing real wage growth, in excess of inflation. People are still not returning to the job market “for a number of good reasons,” including COVID concerns and child care responsibilities (many fewer cite federal pandemic aid). Those switching positions have been seeing improved wages. While prices have been rising rapidly, part of the story, he said, is constraint in the supply lines. He said, “kinks in global supply chain are weighing heavily in our economic outlook” and that a national survey of CFO’s suggest supply chain disruptions are likely to persist for some time. Further, the broad and uneven distribution of vaccines is tied to economic trajectories: by county, higher vaccination rates are linked to higher consumer spending and lower unemployment. Given omicron, in the next six to eight weeks, Goodman said, it seems likely that we’ll see an uptick in cases; as such, extending vaccinations and making it easier for venues to make it easier to see who is vaccinated and not so as to ride out the disruptions while having the highest levels of public health is advised. saying he would “wind up with a little bit of humility,” he noted that chair of Federal Reserve said that none of us knows where the economy will be in a year or more.

In her testimony, in addition to speaking of the forecast for the lottery, Treasurer Deb Goldberg noted the Commonwealth’s  “robust economic base and its prudent fiscal management practices” in discussing the state’s bond rating.

Evan Horowitz of the Center for State Policy at Tufts projected revenue of $36.5B for next fiscal year. He noted the unappreciated risks and weaknesses of current situation, saying there are “many ways for our economy to stumble” and fewer ways for corrections. He said next year was more likely to see a reversion in corporate taxes and prepayments. Finally, with inflation much higher now, every one of the dollars collected by the state, even as there are more of them, is less valuable–that’s what inflation does–making the cost of running state government more costly, and making his revenue projection less cheering; once inflation is factored in, his projection is actually a decline.

The hearing then adjourned. We can expect a joint revenue projection early next year.