This time for sure: FY21 Legislative roundtable

For those who didn't grow up with "Rocky and Bullwinkle" quotes:
Video link is over here and appears to have video! 

Updating as we go...

Sen. Rodrigues opens the hearing

appreciates "esteemed experts joining us today"
have "hit pause on the economy"
"our top goal each and every year" is a fiscally responsible budget that cares for the most vulnerable
manage remainder of FY21 and FY22, "first of critical conversations" about managing

turning over to Rep. Michlewitz
"find ourselves in uncharted waters"
expected to see dramatic shortfalls in coming months
timeline of House budget "no longer feasible"
how to go forward not only in budget process but how to go forward
have worked together on how to go forward
many facing hardships across the state
public health component of this crisis must be dealt with first
opening economy before that would be foolish"
as bad as economic impact is "it pales in comparison" with the health issue
unprecedented "never before have we purposely slowed down the economy"
Goodman: self-induced coma

Sec. Heffernan
"public health emergency"
thank partners in the legislature
have enjoyed steady economic growth for past few years
hope that will mean a strong recovery
continue to be in contact with legislative partners

Rodrigues: have nine experts going to testify today
15 minutes for each

Treasurer Goldberg:
"clearly in unprecedented times"
hope this will be helpful information as you begin to grapple with the state budget
"my office is working overtime to adapt to the current crisis"
rainy day fund is $3.48B
highest balance: "thank goodness"
impact on state and other municipal bond issues will be great
on April 1, Standard and Poors announced a change to all outlooks to negative
pre-pandemic credit of an issuer with largely determine their ability to recover
provided much needed stabilization by allowing for municipal debt to be used
CARES Act provides significant support for businesses and for governments
liquidity coping helps better manage financial pressures
debt management team working with Governor's office
securing line of credit, providing stability during period of economic downturn
looking for legislation that allows for state borrowing this fiscal year and repayment next year
I think she just said they're allowing for direct wiring of payments for hospital needs?
pension fund: unprecedented level of volatility
recognize concerns at hardships across state
gradually have made changes in investments to manage volatility
portfolio is carefully constructed to manage changes in all markets
dip in revenue from lottery
revenue picture has now changed: 1800 of 7500 lottery agents are closed, and many that are open are not selling tickets
sales down 33% from last year (last week)
limitations of "all cash, in person business model"
too early to tell, upwards to 20-25% of retail (liquor) licenses and 10-15% state licenses may not renew
extending deadline for "credit of life" funds for schools to use next year
new ways on training

Michlewitz: question on the rainy day fund: conversation in other states
Goldberg: other states don't have our level of resources
Michlewitz: have you heard of any actually doing it?
Goldberg: some are getting very close to it

Mass Taxpayers Association: Eileen McAnneny, president
mission "is even more important in these challenging times"
as inputs change, our forecasts will have to revised
tax revenues to fall by $4.4B or 14.1% from January benchmarks
believe non-tax revenue will drop as well
$1.2B drop in withholding due to unemployment
predicts state with lose 570,000 jobs
raising unemployment to 17.8%
reduced annualized wages by $29B or 12%; recover 210,000 during FY21, unemployment to 7% by fourth quarter
return to FY20 levels not til FY22
opportunity to buy taxable goods reduced largely to online shopping
demand side creates financial difficulties and limits discretionary spending (like the lottery!)
personal spending decisions will determine spending level
drop in other payments: non withholding $780M; corporate payments by $760M
recovery could start in early July: V shape growth due to pent up demand
important to note there can be no full economic recovery until consumers feel comfortable in crowded settings
need for anti-virals or further testing; could take time, particularly due to regulatory process
in short terms, critical need to control virus cases
less optimistic case: peak shift to summer, then fall recovery
other: virus reemerges, forcing closures again
either of those will look more like a U shape recovery
either way, recovery would take several years
other risk is that Massachusetts will lag rest of country on recovery; disparities in regional risks
several states are more vulnerable to economic shocks; all coastal
risk factors: exposure to virus (as measured by cases and international travel); demographics; global interconnectedness; tourism; finance; commodities
Massachusetts measures high in all of those; thus could experience steeper decline than country as a whole
Will federal assistance be sufficient?
CARES designed to moderate economic impact: "to stop the hemorrhaging"
designed to be used by July
federal reserve on $2.3T
Congress looking at further small business assistance
even with these interventions, additional relief and intervention will be necessary to stimulate economy
Moody's model assumes further federal intervention
"current challenge is a public health crisis with massive economic fallout"
need for shoring up all economy
Fed's role is to provide as much stability as we can;
even prior to pandemic capital gains were likely to come in under projections
reduces tax revenue base for forecast
non-tax revenue is about 40%; largest is federal assistance for MassHealth

Michlewitz: when do we know if it is a U versus V shape?
all contingent on facts on the ground that have been changing over past 30 days
public confidence down
waves may be coming back in and need to re-isolate
could come back in the fall
when they abate, and when people feel any confidence in economy
April unemployment numbers can be put into models once available
"at least a month away from knowing..."

Beacon Hill Institute:
"we're in the middle of a lot of guesswork"
have surveyed the literature and pandemics
need aggressive fiscal policy at the federal level; hope that current work is effective
predict in calendar 2020; MA GDP down by 7.2%
rise to 14.7% unemployment (MA)
tax revenue decline by 20%
did not try to revise in light of fiscal years
"very little data on which to revise" FY20
"policy of cautiousness is called for"
will be a lot of uncertainty even in the next fiscal year
analysis based on forecast to the national economy; how state performs relative to federal economy
believe nation and world will face a "deep recession"
"that is on a depression level"
forecasts expecting a V shaped recovery
"we're expecting that there could be an L or U shaped recovery"
so far 16M workers have filed unemployment claims over the three weeks
10% of workforce
expect that tax revenue will fall across the board at levels past those of 2008 recession
clear that Massachusetts will face a deep recession "and even depression" if the pandemic persists beyond May
in total over 468,000 people in Massachusetts have filed unemployment claims, over 12% of state's total workforce
7.4% fall in US GDP forecast
7.2% decline in Massachusetts GDP forecast
14.7% rate of unemployment for state this year forecast
state tax revenues forecast to fall by 20% on the calendar year (not the fiscal year)
while state has a stabilization fund, "it is imperative that state receive federal" aid
Michlewitz: Q: state unemployment rate forecast of 14.7%
currently 12.7%
seems like we're above national average; will national average go above ours?
"Massachusetts will probably outperform the national average"
there is a chance that we could see significant job losses, but have to believe that our economy will still outperform the national economy
recovery depends on pandemic; second wave would mean W recovery
"difficult going to do a budget on time" as suspect won't know until mid-July


MassBudget: Marie-Frances Rivera
some of her comments will overlap with some of what has been said
envision a state where everyone has the resources they need
building towards a just sustainable democracy
"this isn't a drill; this is our time to really step up"
"this is a public health crisis...at the heart of it"
stark focus on how interconnected we are; pushing our public systems to the public test
"Government exists for this very moment."
"what we are offering are observations" based on prior recessions have impacted tax revenues
based on DoR tax revenue and consensus revenue numbers; were two recessions in the past two decades
in the year following the recessions
revenue fell between 14-16% in the following year
"didn't reach pre-recession levels for another five years"
FY20 $4.2-4.9B below
FY21 could fall between $5-5.7B short of consensus revenue estimate
"always lives in a larger economic context"
numbers and estimates have changed dramatically over the past week
latest numbers are showing we are already as of April 4 approaching initial claims that had been projected for July
"let's plan for the worst and hope for the best"
some areas of solutions that we'll propose:
tax loopholes: large multinational corporations to pay their fair share
film tax credit
tax credits delivered to a few special industries
state charitable deduction would cost $300M a year
on rainy day fund "it's pouring...these funds must be accessed"
can cut spending or raise more revenue
federal government "should and must do more" to support state government
"it's really dire...now is not the time to switch into austerity mode"

Michael Goodman, UMass Dartmouth
oooh, sharing slides
one way of thinking about this: economy in a "state of suspended animation:
"in a medically induced coma"
reflect on how to impacts on state economy
effects economy in a number of ways: variety of dimensions: supply disruptions; consequences of containment measures; associated loss in jobs and economic activities
negative 3 traction in global economy in 2020
"economic catastrophe that's very slow moving"
dramatically larger than recession in 2008
largest global impact since Great Depression; thinks earlier comment are on target
"not likely to slow down soon"
putting extreme pressure on households...creates real human problems
puts lots of pressure on state programs and resources, as demand will rise substantial
resolution will depend on conditions of disease, not economic conditions
growing consensus until we have an effective treatment or vaccine it will be difficult to expect that this virus will just recede
opening up economy will require a number of public health development, including testing of both virus and antibodies
"remains an open question and a wild card for all forecasts you'll hear today"
extreme demand on state and local budgets
just MassHealth: 6% enrollment in Medicaid nationally
"I join my colleagues on this panel in congratulating" on rainy day fund
but don't think it will be a sufficient fiscal buffer: don't mean that as a criticism
"a temporary but very important buffer"
pressure on unemployment insurance trust fund
"really going to tax that fund"
"no question that federal resources are going to be required if we're going to ride this out in a way that minimizes pain and suffering"
"none of us really knows what's going to happen next"
as data comes in "challenge seems to grow"
severe recession, decline for $6B projected
harsher downturn than that
incomes fall, job loss, businesses shuttered
"I can't see a way out of this...without additional aid to the states"
eds and meds are a big sector of our economy; have generally been stabilizers
health care providers have been put under incredible pressures
unintended consequences of quarantines plus end of all elective or postponable medical needs "have blown a very large hole" in health care
"dramatic financial risk facing right now"
similarly on higher ed: Moody's downgraded higher institutions nationally, limited liquidity
concerns on horizons due to system of delivery and revenue sources
both have been fuel for Massachusetts innovation economy
What to do?

• public health must come first. Take whatever actions are needed to 'bend the curve.' Rationing care must be not done. 
• prioritize human needs directly impacted on this. We are living with the economic consequences of too slow a recovery from prior recovery. 

Alan Clayton Matthews, Northeastern University
ran a revenue model to estimate impacts on revenue for state in FY20 and FY21
based on assuming 20% of workforce will be unemployed, furloughed, on leave, or dropped out
output and incomes will fall by 15% by June/July
behavior: will it respond to economic conditions in the past?
will income tax payments occur at the same time?
revenue estimates he's using don't take into account CARE funding
could give people more revenue to spend, but it's a federal tax credit, so it can't be taxed as income
forecast that it will come back to end of 2021
of course virus, mitigation measures, will impact
"it's a fairly optimistic projection"
projecting that FY20 comes in even; FY21 comes in 12% down ($26.1B)
could be better than these appear
capital gains: 31% drop in FY20; 5.5% increase in FY21
projection that stocks will largely come back
Total revenue down $6B less than what was projected, but screwed negative, so $5B more on order
$670M capital gains, about the same in FY21 relative to what was expected

Rodrigues calls his presentation: sobering but not surprising



Evan Horowitz, Tufts Tisch College
total tax revenue:
$500-700M below benchmarks for FY20
$2B below consensus revenue for FY21; depends heavily on the timing of the recovery
projecting MA revenue from projecting US revenue
estimates for rest of FY20 then FY21
"just don't have a handle on what revenue will look like in FY21"
"a lot of guesswork on tax revenue"
federal government has taken "very fast, very aggressive" action
"strange to call a potential $3B shortfall optimistic" but it is
sorry missing a bunch of this as the video keeps freezing
"it may make sense to draw from the state stabilization fund" if federal support is insufficient, "which it might"
"opportunity for savings in the budget": important to look for areas where spending can't happen or genuinely doesn't need to happen, lest the impact be exacerbated
urgent spending on health care and other urgent needs
FY21 looks quite different: November election
local and education aid for cities and towns
e-learning
rebuild Main Street businesses
colleges "may not be able to survive another empty semester"
unemployment insurance trust fund
conservative revenue estimate needed
build a plan for midyear review and adjustment: "when might we know more and when might we be in a better condition?"
will have a better idea by mid to late summer
convening some group together to discuss and plan on other impacts

Bethann Bovenio from Standard and Poors
who is talking about a chart that they all have but isn't on the screen; not going to get this one...
very slow, U shaped recovery
one difference would be infrastructure spending
could turn the path to the future

Dan White, Moody's Analytics
who says he doesn't have any slides as he figures that at this point "you've been PowerPointed to death"
works with 33 different states
guidance giving between baseline and moderate recession scenario
virus is interfering with budget forecasts
projections are based on May to early June restrictions being lifted
magnitude of downturn isn't necessarily unprecedented, it's the time over which they happened
return to normal "whatever normal might be"
and then we lost sound
sometimes economy loses gas during recovery
some parts may not come back as quickly; looks more like a W
initial downturn, recovery, then downturn, then additional stimulus to kick it back up
"the only way to combat that is to have a whole bunch of small stimuluses"
projecting: about a 20% decline in GDP
peak unemployment (US) of 13-14%
if restrictions don't come off until the third quarter, "longer period of sluggishness"
do state stress tests every fall
updated version of those stress tests were released this morning
how much the state could lose in state revenue, and how much states could lose in federal
normal recession is 11% of their revenue in a rainy day fund
"there's no such thing as an average state"
most states are not used to seeing this kind of stress
average state is going to see 17% of the economy go away during this year; 23% under severe scenario; Massachusetts is in 15-17% range
doesn't have as volatile a tax code; more progressive code in other states injects a larger amount of volatility into tax revenue
mostly health care and education in Massachusetts for economy; much more solid when we go into downturns like this
$3.7-$4.6B range; emphasize to give orders of magnitude; high level numbers
encourage stress test
once we get into FY22, will overwhelm scope of fiscal reserves

Rodrigues: will be working very closely together as they navigate through this fiscal crisis
"God bless; stay safe."