BOSTON – State budget writers agreed Monday to build their fiscal year 2020 budget plans on the assumption that state tax revenues will grow by 2.7 percent over the current fiscal year.
Gov. Charlie Baker's budget chief and the leaders of the House and Senate Ways and Means Committees detailed a finalized accord on how much tax revenue the state expects to collect in fiscal year 2020, which begins on July 1. Budget watchers also upgraded their expectations for tax revenue in fiscal 2019, upping the projected total revenue by $200 million, to $28.529 billion.
The estimate of $29.299 billion in tax revenues for fiscal 2020 amounts to $770 million more in revenue than the updated projection for the current fiscal year. The projected growth rate will serve as the basis for Baker's budget, which is due on Jan. 23, and budget-building exercises this spring and summer in the House and Senate.
Economic experts who offered their financial forecasts at the annual consensus revenue hearing earlier this month predicted state revenue collections will grow somewhere between 2 percent and 3.4 percent in fiscal 2020.
In announcing the agreed-upon revenue figure of 2.7 percent, budget officials used words like "modest" "more moderate," and "responsible" to describe the forecast of the state revenue picture that represents a slowdown from the 3.5 percent revenue growth the officials had agreed to for the current year.
Fiscal 2018 tax collections of $27.787 billion surged 8.3 percent above fiscal 2017 collections, according to state records.
The slowdown in natural revenue growth comes as lawmakers re-evaluate plans for major increases in education, transportation and health care spending, and ways to pay for those investments. Legislative leaders have not ruled out tax increases in the new year and any proposals to raise taxes would be considered as part of the annual budget debate over the first half of 2019.
"The FY20 forecast reflects modest growth in the Commonwealth's economy, consistent with testimony we have heard from economic experts," Administration and Finance Secretary Michael Heffernan said in a statement. "Reaching agreement on a consensus revenue forecast is a critical first step in developing a fiscally responsible budget for FY20."
Sen. Joan Lovely, who serves as vice chair of the Senate Ways and Means Committee but has led the committee since Chairwoman Karen Spilka became Senate president, said the 2.7 percent growth estimate will be enough to invest in programs and to stash money away in the stabilization fund.
"Given the Consensus Revenue testimony that forecast more moderate growth for the next fiscal year, I believe that this number will give us a firm foundation on which to craft a budget that makes necessary prudent investments in both the needs of the people of the Commonwealth and the Rainy Day Fund," she said in a statement.
House Ways and Means Chairman Rep. Jeffrey Sanchez, who is leaving the Legislature this week after losing his November re-election bid, said the agreement leaves the state in good fiscal hands.
"Through engaging economists and other fiscal experts, we've come to a responsible FY20 Consensus Revenue agreement that sets the stage for the next budget process," he said. "Thank you to Secretary Heffernan and Vice Chair Lovely for the thoughtful collaboration in coming to this agreement. It's through this cooperation that Massachusetts continues its strong economic growth and is why Massachusetts is well positioned for what may lie ahead."
The 2.7 percent growth figure, the budget managers said, assumes the state income tax rate will drop from 5.05 percent to 5 percent on Jan. 1, 2020. Earlier this month, Baker's office announced that all of the necessary economic triggers had been hit and the income tax will fall from 5.1 percent to 5.05 percent on Jan. 1, 2019. The reduction will have a $175 million impact on the state over a complete fiscal year.
Heffernan, Sanchez and Lovely also agreed Monday on a transfer of $1.077 billion to the Massachusetts Bay Transportation Authority, a $917 million transfer to the Massachusetts School Building Authority, and $25 million to the Workforce Training Fund.
There will also be a $2.841 billion transfer to the state pension fund -- an increase of $233 million over the fiscal 2019 contribution -- which is expected to keep Massachusetts on track to fully fund its pension liability by 2036.
After a total of $5.080 billion in transfers, the maximum amount of tax revenue available for the fiscal 2020 budget will be $24.219 billion, the officials agreed. The state budget, which totals about $41.7 billion this fiscal year, is supplemented by federal revenues along with non-tax revenues like fees.
Neither the fiscal 2019 revenue estimate adjustment nor the fiscal 2020 estimate announced Monday include projections of non-medical marijuana revenue. Five retail marijuana stores have opened in Massachusetts and regulators expect a handful more to come online each month. Marijuana sales are subject to a 10.75 percent excise tax and the state's 6.25 percent sales tax, as well as a local tax of up to 3 percent.
"With the industry at its beginning stages, the three branches decided to set aside the marijuana forecast so that the Administration, House, and Senate can make independent decisions on marijuana revenue for FY20 based on available information as each goes to print their budget proposals," the administration wrote in a press release Monday.
The Department of Revenue is still forecasting that Massachusetts will take in between $44 million and $82 million in marijuana taxes this fiscal year and could bring in as much as $172 million in fiscal year 2020, Revenue Commissioner Christopher Harding told lawmakers in early December.
Also Monday, Heffernan, Sanchez and Lovely agreed to a 3.6 percent rate of potential gross state product growth for calendar year 2019, the same figure that has been used the past four years to set up a health care cost growth benchmark under the 2012 cost containment law.