Published on Thursday, 06 December 2018 12:45
Each year, the Legislature's Joint Ways and Means Committee holds a public hearing with the Governor's office to receive expert testimony before they agree upon a revenue number for the next fiscal year; this amount will determine what they budget for next year. The Joint Committee met Wednesday, December 5 this year. The Committee is jointly chaired by Representative Jeffrey Sanchez and Senator Joan Lovely, with Secretary of Administration and Finance Michael Heffernan sitting in for the Governor's office.
Commissioner of the Department of Revenue Christopher Harding opened the testimony by noting the strong economic growth of FY18 and spoke of the benefit that has been to tax revenue. He recognized that some of that was due to capital gains and some to corporate taxes, both which tend to be volatile. The federal tax bill's change for personal filings on deduction of state and local taxes also led many to file their taxes early, in order to take the deduction while it was still allowed. Some of the tax revenue thus may be borrowed, in essence, from a subsequent year. He cautioned the strong economy was "less indicative of trends than episodic factors," suggesting that an economic slowdown is coming. The Department believes at this point that state revenue will trigger a drop in the tax rate to 5.05% next year. While retail sales of marijuana are expected to add to tax revenues, the Department is cautious about projections, as the market is new and is known to be unpredictable; they are projecting between $92M and $172M in tax revenue from that market. They project a 2 to 2.2% rate of revenue growth for next year.
Treasurer Deb Goldberg next spoke, spending a good deal of time speaking about the lottery, which again brought the state $5B last year, and pressing for online gaming. She also suggested that she and the administration again go to New York City to visit bond rating agencies in person as they did previously. She noted the need for new school buildings across the state (the Treasurer's office oversees the Massachusetts School Building Authority) and tied that to the state's ability to borrow on favorable terms.
Dr. Bo Zhao of the New England Public Policy Center of the Federal Reserve Bank of Boston gave the committee a detailed look at the strong job market in Massachusetts, particularly of the shrinking rate of unemployment, even when those underemployed are included. In turn, this has triggered a stronger wage increase over prior years. The housing market is not growing as quickly as the rest of the country, however, and exports are slowing. Zhao, too, saw the economy as doing well but slowing.
The Mass Taxpayers Foundation projects growth for FY20 at 2.4%, not, notably, including marijuana sales or one-time funds; in particular, they noted a projected drop in capital gains. With one of the lowest birthrates in the country, the state has an aging workforce, which has also been hampered by the opioid epidemic. They said "we are on borrowed time" on an economic downturn, noting both international and domestic stressors on the state economy.
William Burke of the Beacon Hill Institute also projected 2.4% growth for next year, with slowing growth after that. He was followed by Alan Clayton-Matthews, a professor at Northeastern, who projected 3.4% growth; he said that he has run models suggesting that many had, in fact, filed their state taxes early before the federal tax changes took place. That thus is a downside to FY19 doing so well.
Michael Goodman of UMass Dartmouth closed the morning's testimony, reflecting on the context in which this budget will be constructed. He echoed earlier concerns about the workforce in Massachusetts, adding that the barriers to international migration do not help on this score. He said "our most important competitive advantages are the talents and innovative capacity of our people--our human capital." While greater Boston's economy is booming, that is not true of the rest of the state, and greater Boston struggles with "increasing congestion on our roadways, a growing reliance on our already struggling public transit systems, and...a serious housing affordability problem." There is, he said, a growing consensus that a reversal of economic fortune is in the offing. In response to questions, he recognized the need for action on student debt and workforce training.
In sum, testimony reflected concern of a future economic downturn and agreement on a smaller rate of growth than the current year.