The tea leaves, when they can read them, will likely present a bleak picture â€“ the Massachusetts Budget and Policy Center's testimony contemplates a scenario where fiscal 2021 tax collections land $5 billion short of the estimates agreed to in January.
Despite the forecasts, or perhaps because of them, Massachusetts Budget and Policy Center President Marie-Frances Rivera told lawmakers and the administration it was “not the time to switch to austerity mode.” She urged them to close tax loopholes, use the state’s $3.5 billion “rainy day” fund and tap federal aid to preserve spending on critical human services.
Marie-Frances Rivera, president of MassBudget, said her think tank is estimating state tax collections could fall $5.0 billion to $5.7 billion in the current fiscal year, which ends June 30. The analysis is based on the two prior recessions, in which state tax collections were 16.1 percent and 13.8 percent below projections.
“These are large numbers. And while I stress again that we are not saying this pattern necessarily will occur again now, we are noting that such declines are by no means out of the question,” Rivera said in prepared testimony. “Such sharp and persistent declines in tax collections have occurred in each of the last two recessions and very well could again.”
Rivera also noted estimates that nearly 500,000 Massachusetts workers will be laid off or furloughed by July. That equates to a 14 percent drop in employment in just five months. By comparison, during the worst five-month stretch of the Great Recession, employment declined by 78,000, or 2.4 percent.
“This is not a drill. This is a stormy time,” Rivera said. “We are in an unprecedented moment â€“ a public health crisis that has catapulted us into an economic crisis.”
The state will need to tap into its rainy day fund and should also reconsider some tax breaks and work to ensure it receives as much federal relief money as possible, Massachusetts Budget and Policy Center President Marie-Frances Rivera said.
The economic ramifications of the pandemic have left many people out of work and struggling to afford housing and other basic needs, Rivera said. She said the state must make sure it continues to fund key services and that systems people rely on — like transit, education and unemployment insurance — remain operational.
"Now is not the time to switch into austerity mode, so we have to utilize all the tools that we have in our toolbox," Rivera said.
If patterns from past recessions hold, Rivera said, fiscal 2020 tax collections would fall somewhere between $4.2 billion and $4.9 billion below fiscal 2019 collections, and, with limited growth, collections in fiscal 2021 could land between $5 billion and $5.7 billion shy of the estimates budget writers agreed to in January.
Rivera said state officials should identify ways to limit near-term tax losses “so we can invest in people now and into the future.” MassBudget’s written testimony said the “best, first option” for doing so would be “to delay, down-size or eliminate several of the largest and most wasteful tax breaks and tax loopholes in our state tax code.”
Specific tax policies Rivera flagged for reconsideration included the film tax credit, the “single sales factor tax break,” and a not-yet-implemented new state charitable deduction.
She thanked budget writers for building up the state’s rainy day fund in recent years. “Our recommendation would be — it’s pouring,” Rivera said. “We need to use it to make sure we have vital services covered. These dollars must be accessed.”
The public projections so far are bleak. Annual revenue shortfalls could stretch to $5 billion or $6 billion, the Massachusetts Budget and Policy Center estimated.