Healey Team Sees Budget Gap Of Up $233 Million, Opportunity To Allocate Income Surtax Surplus
AUG. 9, 2024…..The state hauled in $40.8 billion in tax revenue for the fiscal year that ended June 30. But while the total tops expectations by $967 million, all of that overage and then some came as a result of the state’s new high-earner surtax, leaving a budget gap that could be as large as $233 million, state finance officials said Friday.
Fiscal year 2024 tax collections of $40.8 billion beat fiscal 2023’s total by $1.636 billion or 4.2 percent and topped the fiscal 2024 benchmark that was revised downward by $1 billion in January by $967 million or 2.4 percent, the Department of Revenue announced.
DOR said that revenue from the 4 percent surtax on household income above $1 million totaled about $2.2 billion, compared to the $1 billion that budget writers put to use as part of their conservative approach to the new revenue source in their fiscal 2024 spending plan.
Surtax revenue is constitutionally dedicated to education and transportation initiatives and as such cannot be used to balance the budget. The $1.2 billion in above-expectations surtax collections is required to be transferred to a separate account, where it will be available for one-time appropriations at a later date, Administration and Finance Secretary Matthew Gorzkowicz said.
After adjusting for the impact of the surtax on fiscal 2024 collections, Gorzkowicz said, the state’s year-end result is about $233 million below the revised benchmark and roughly $322 million below fiscal 2023’s total collections. He described the result as consistent or perhaps even a bit better than what the administration had in mind in January when it trimmed the year-end revenue estimate by $1 billion and made a series of mid-year spending cuts and revenue adjustments.
Gorzkowicz said the Healey administration feels very comfortable that it can close out the fiscal year this fall in balance and without tapping into the state’s Stabilization Fund. He said tax collections account for 60 percent of the state’s revenue and that the administration is still sorting through things that make up the remaining 40 percent, like reversions and departmental revenues.
The secretary said he expects to have a better sense of exactly what the gap was between fiscal 2024 spending and revenues available to match that spending by the time the administration files a close-out supplemental budget around Labor Day.
“The increase in the surtax was partially offset by decreases in sales and use tax, corporate and business excise, and ‘all other’ tax,” Revenue Commissioner Geoffrey Snyder said in a statement. “The decrease in sales and use tax was primarily driven by a decrease in regular sales tax, reflecting, in part, lower collections from building supply dealers and firms in the construction industry. The decrease in Corporate and Business taxes was driven by a decrease in return payments and an increase in refunds, partially offset by an increase in estimated payments. The decrease in ‘all other’ tax is mostly attributable to a decrease in estate tax, a category that tends to fluctuate.”
Asked about the dramatic difference between surtax revenue collected and what he and legislative budget writers agreed to spend in the fiscal 2024 budget, Gorzkowicz said that DOR had estimated surtax revenues would come in somewhere in a range of $1.3 billion to $1.7 billion. He said he and lawmakers have tried to be conservative in their surtax spending, earmarking $1 billion in fiscal 2024 and $1.3 billion in fiscal 2025.
But with surtax revenues having topped $2 billion, the secretary said there is an opportunity to reevaluate future levels of surtax spending. He said it’s possible that the fiscal 2026 budget relies on an even greater amount of surtax revenues, but also that surtax revenues can be volatile and are part of the consensus revenue process that will get underway in December.
The Raise Up Massachusetts coalition, which led the campaign to pass the income surtax, said it was working as intended and had helped to fund tuition-free community college, universal school meals, and free regional bus service.
“Because the ultra-rich are paying closer to their fair share of state taxes, Massachusetts is improving our roads and bridges, making child care and public college more affordable, and finally starting to fix the T. And we’re just getting started,” coalition spokesman Andrew Farnitano said Friday.
DOR also said Friday that its preliminary estimate of capital gains tax revenue collected last budget year was $2.07 billion, which generates a total fiscal 2024 transfer of approximately $590.8 million to the Stabilization Fund, the State Retiree Benefits Trust Fund, and the Pension Liability Fund.
Collections ended fiscal 2024 on a strong note, with DOR raking in $4.495 billion in June, which is generally the state’s second-most significant tax revenue month. That was $357 million or 8.6 percent more than actual collections in June 2023 and $268 million or 6.3 percent above the administration’s monthly benchmark.
And the state kicked off fiscal year 2025 by bringing in $2.648 billion in July, $18 million or 0.7 percent less than last July. But Gorzkowicz said Friday, in response to a question about Senate Ways and Means Chairman Michael Rodrigues’ concern about July revenues, that the situation was worse than it looks on paper.
This July had a couple of extra days for collections, the secretary said, and July 2024’s collections would actually have been about $78 million lower than last July’s after accounting for the different number of days. And even though July is a relatively small month for tax collections, the secretary said starting off in a hole is not the best way to begin any fiscal year.
And state officials also know they are likely to need to pump hundreds of millions of dollars more into the maxed-out emergency assistance shelter program in fiscal year 2025. Lawmakers have approved a combined half-billion dollars between direct appropriations and available one-time funds, but the administration’s latest report to lawmakers estimated that total fiscal 2025 shelter costs will actually be $1.018 billion.
Gorzkowicz said Friday that the money already available to the administration should last until sometime in January. He said the administration expects to file a supplemental budget around then, perhaps very early in the new legislative term, to ensure it has enough money to continue to run the shelter system for the rest of the budget year.
