In an effort to reach a consensus revenue estimate for planning the coming year's budget (FY11, which begins July 1, 2010) the Legislature and Administration hold a hearing every December to hear revenue forecasts from economists and the Department of Revenue.
At today's hearing held in Gardner Auditorium in the State House, the Legislature's Joint Committee on Revenue and Jay Gonzalez, secretary for the Executive Office for Administration and Finance, heard testimony from four economists, DOR Commissioner Navjeet K. Bal, and state Treasurer Tim Cahill.
The treasurer did not offer any formal economic analysis or forecast, other than urging the legislators to go with the lowest possible estimate. However, the economists and DOR all agreed that after hitting bottom this fiscal year, revenue collections will begin a gradual ascent as the economy recovers.
There was a high degree of unanimity on that, even to the point where the FY11 revenue estimates themselves were all reasonably similar. DOR forecast a range between $18.531 billion to $19.342 billion. The Massachusetts Taxpayers Foundation came in at $18.953 billion. The Beacon Hill Institute came in at $19.457 billion. A Northeastern University economist came in at $19.209 billion. The fourth economist, from the Federal Reserve Bank of Boston, offered analysis but no revenue estimate.
All these estimates are higher than the October 15th revised consensus revenue estimate for FY10 of $18.279 billion.
The reasons for the muted optimism include forecasts calling for more employment, more personal income, more consumer activity, and an improved picture for corporate profits heading into FY11.
Several economists pointed out that while the recession was late in hitting Massachusetts, which means the recovery here may lag behind that of the nation as a whole, Massachusetts did not suffer a deep meltdown in residential real estate (no speculative bubble from overbuilding) and was not reliant for employment on production of consumer goods such as automobiles. In other words, other states got hit harder than Massachusetts.
Tempering this modicum of good revenue news, however, is the realization that the state faces a $3 billion gap between revenues and expenditures in FY11. A modest increase in revenue alone will not offset that gap, and the availability of federal stimulus funds and reserve funds is limited in the coming fiscal year. All of which means FY11 will be a very tough budget year, even with an increase in revenue. Keep in mind that as recently as FY08, tax collections hit $20.888 billion before dropping $2.62 billion or 12.5 percent in FY09.
Go to DOR's briefing book for a deeper look at the facts and figures fleshing out DOR's FY11 revenue estimate.