February Tax Revenues Off From Last February, And Miss Revised Benchmark
MARCH 5, 2024…..State tax collections fell short of the mark again in February, extending what was already the longest streak of below-benchmark months in more than two decades, and tax revenue remains down compared to a year ago.
The run of soft collections is changing the complexion of the legislative session by forcing Gov. Maura Healey and Democrats in the Legislature to reckon with a revenue base that’s not living up to the spending appetites established in recent years. Hours before the monthly revenue report was released, the House teed up plans to pass a $260 million supplemental spending bill.
The Department of Revenue reported Tuesday that it collected $2.007 billion last month — $27 million or 1.3 percent more than actual collections in February 2023 but still $11 million or a slim 0.6 percent shy of the administration’s revised monthly benchmark of $2.018 billion. The Healey administration in January lowered the monthly benchmark for February from the $2.137 billion it originally projected for the month prior to the governor’s fiscal year 2024 revenue downgrade.
The last time tax collections came in at or above the administration’s monthly benchmark was June 2023, nine months ago. The Healey administration didn’t establish fiscal 2024 benchmarks until August last year, so there was no official expectation set for July 2023. But each month since — now seven in a row — has seen collections fall short of the administration’s projections.
That’s the longest streak of below-benchmark revenue months in more than 20 years, according to a review of DOR’s monthly collections press releases.
There were four-month stretches of below-benchmark collections from July though October of 2012 and again January through April of 2017. Collections came in below benchmark in April, May and June of 2020 as the COVID-19 pandemic took hold and tax-filing deadlines got moved, and the next six months did not have benchmarks as the state operated on interim budgets to start fiscal year 2021.
February tends to be the least significant month for state tax receipts but still produces 6 percent of the state’s annual tax revenue. “February is also the month in which refunds reach substantial levels as the tax filing season begins,” DOR said.
“February collections increased in income tax withholding and corporate and business tax in comparison to February 2023. These increases were partially offset by decreases in non-withheld income tax, and ‘all other’ tax. The increase in withholding was due, in part, to payments related to mergers and acquisition activities. The increase in corporate and business tax was due to an increase in corporate estimated and return payments,” Revenue Commissioner Geoffrey Snyder said. “The decrease in non-withheld income tax was driven by an unfavorable increase in income tax refunds. The decrease in ‘all other’ tax is mostly attributable to a decrease in estate tax, a category that tends to fluctuate, but was partially offset by an increase in division of insurance tax.”
Since fiscal year 2024 started in July, DOR has collected $23.467 billion, which is $186 million or 0.8 percent less than actual collections during the same eight-month period of fiscal 2023 and $275 million or 1.2 percent less than what the Healey administration projected in January that it would have hauled in by this point in the calendar.
In early January, Healey and her budget team hit the budget reset button, announcing plans to cut $375 million from the fiscal 2024 budget amid flagging tax collections, to downgrade the amount of tax revenue expected this budget year by $1 billion, and to build the next state spending plan on the assumption that even less tax revenue will come in next year. The plan called for the administration to seize $625 million in newly-tapped non-tax revenues to help balance this year’s budget.
The Executive Office of Administration and Finance said the administration is not planning to make additional budget moves in connection with the below-benchmark February revenue report. A spokesman said the budget office’s outlook on fiscal 2024 has not changed.
DOR is due to report revenue collections for March by Wednesday, April 3. The monthly benchmark for March, which DOR said is usually “a mid-size month for revenue collections, ranking sixth of the 12 months in eight of the last 10 years,” is set at $3.935 billion. That would be $52 million more than what was collected in March 2023.
