Spending Decisions May Loom on ARPA, FY 2021 Surplus
Despite the tax filing deadline being moved from April to May, the Department of Revenue collected $3.865 billion in taxes from people and businesses last month — $385 million more than the Baker administration had estimated for the month even before it extended the deadline.
The April receipts put the state roughly a month ahead of the projections that DOR made in January for the second half of the budget year and position Massachusetts to end fiscal year 2021 within one percentage point of the pre-pandemic revenue estimate for the year. Early on in the fiscal year, lawmakers and economists were expecting they could fall short of that estimate by as much as $8 billion, expectations that were way off.
April tax collections came in just more than 11 percent above DOR’s monthly benchmark, continuing the trend of actual tax collections blowing DOR’s monthly estimates out of the water. January collections beat the benchmark by 14.7 percent, February collections surpassed the benchmark by 24.8 percent and March revenues came in 26.8 percent over expectations.
Through 10 months of fiscal 2021, state government has collected $26.449 billion in tax revenue, up $3.405 billion or 14.8 percent over the same period in fiscal 2020 and $1.83 billion or 7.4 percent over DOR’s benchmark.
Year-to-date collections through April are roughly equal to the amount DOR expected to have collected through 11 months of the year — DOR said its midpoint estimate for year-to-date collections through May was $26.513 billion.
If May and June revenues now come in at exactly the DOR benchmarks — and May’s benchmark was determined before the tax filing deadline was moved to May 17 — Massachusetts will have collected $30.92 billion in tax revenue in fiscal year 2021.
That would be $1.83 billion or 6.3 percent more than what the Baker administration projected it would collect this fiscal year when it last updated its expectations in January, $1.311 billion or 4.4 percent more than what was collected during fiscal year 2020, and only about $230 million or 0.74 percent less than the pre-pandemic estimate of $31.15 billion in tax revenue for fiscal year 2021.
It would also be about $800 million more than the consensus revenue agreement being used as the House and Senate craft the forthcoming fiscal year 2022 budget.
As the fiscal 2022 revenue estimate began last month to look like it could be overly conservative, House Ways and Means Chairman Aaron Michlewitz said any change in the fiscal 2022 revenue assumption would come about after discussions between the House, Senate and administration.
“I don’t think we’re ready to do that yet. As we know, the income tax filing deadline was pushed back to May [17] so there’s still a lot of things that have to play out here over the rest of the fiscal year before we can feel any certainty about moving that number,” he said in April.
By April 15, DOR already had an indication that April tax collections were coming in strong. By mid-month, DOR had already collected $1.757 billion — roughly double what had been collected during the same half-month period last year and almost 90 percent of the $1.981 billion that was collected during all of April 2020. Last year, the tax filing deadline was moved from April 15 to July 15.
The over-benchmark fiscal 2021 collections, if they hold up, could lead to a significant surplus this summer, which would come just as state officials are making decisions about how to spend billions of dollars in federal aid coming as part of the American Rescue Plan Act. Legislators and the Baker administration have said they hope to use available revenues to limit rainy day fund withdrawals.
Fiscal year 2021 has been something of a wild ride for DOR, state budget managers and analysts. Before the COVID-19 pandemic was on the horizon, lawmakers and the Baker administration agreed to an estimate of $31.15 billion in tax revenue for fiscal year 2021.
The fiscal 2021 budget-writing process was put on hold once the pandemic began to ravage the economy and some economists and lawmakers expected fiscal 2021 tax revenue could be between $2 billion and $8 billion shy of that pre-pandemic estimate.
When Gov. Charlie Baker filed a revised budget in October, his administration forecasted that tax revenues would total $27.6 billion. That estimate was upgraded by $459 million to $28.44 billion in December and further revised in January to $29.09 billion.
May revenue figures, which will capture the impact of the new May 17 tax filing deadline, are expected to be reported Thursday, June 3.
