FY25 Joint Consensus Revenue Hearing

 hearing will be going up here (updating as we go here!) 

As reporter Katie Lannan notes:

✨three fiscal years at once✨ https://t.co/TYO13qYM98

— Katie Lannan (@katielannan) December 4, 2023

Senate Ways and Means Chair Senator Rodrigues notes that the Senate is in session, subject to the call of the chair and "I need to put fiscal year '23 to bed before I start talking about FY25"

(The House, on a very rare hand count, passed the closeout FY23 budget about an hour ago, so it's heading to the Senate)
"bold investments, critical tax relief..."
"several months below benchmarks...economy is cooling off"
"humanitarian crisis overrunning" shelter system
collaborative approach

House Ways and Means Chair Rep. Michlewitz: closing FY23, continuing to talk about FY24
predicting revenue can be difficult...especially challenging this year
faced with declining revenue numbers in the first few months of FY24
"not a cause for alarm"
"record rainy day fund"

Secretary of Administration and Finance Matthew Gorzkowicz
"expectations for the economic environment"
"fiscally responsible" FY25 budget
continues to advance the priorities of this administration
economy is at the turning point: years of substantial surpluses, steering towards slow growth
"continued but slow growth in the coming year"
a fresh look at FY24, and "a well considered" FY25 baseline
less than two months until the Governor files the proposed FY25 budget (which will be House 2!)

Commissioner Jeffrey Snyder and the team from the Department of Revenue
areas of risk and uncertainty:
inflation could remain high; further policy tightening, potential 
"potential for political gridlock resulting in an extended government shutdown"
Middle East and Russia-Ukraine conflicts
economic outlook and potential recession
and other global and political factors "currently not on page one of the news"
year to date in FY24 is about $353M below year to date benchmark
Final result for November will be published tomorrow
adjusted benchmark with tax relief bill: $577M down due to tax relief bill 
forecasting a decline in income taxes $371M and $43M decline forecasted for FY24
$17M below to $94M above the current FY24 benchmark for capital gains
sales: 2.8% below benchmark: predicting $284M to $56M below benchmark
corporate and business excises $208 and $49M below benchmark
for FY25: increase of 3.1 to 4.6% above current FY24 forecast for income tax
4.5% and 5.1% in withholding
-.9% and 9.3% in capital gains
2.4% and 3.3% in sales tax
-3.2% and 0.7% in corporate and business excise
-2.4% and -.8% for other
SUMMARY: FY24 2.5% to 0.6% less than the benchmark excluding the $39.8B surtax
FY25 1.7% to 3.2% higher than FY24 excluding surtax
surtax forecast $1.5B and $2B in FY24 and $1.77B and $2.127 in FY25
Rodrigues: back to FY25 forecast, asks about benchmark
Snyder: trying to respond to the question by citing the color of the chart "of course I don't have color [on his printout]...I was trying to be economically prudent"
Snyder responding "this represents absolutely our thinking today"
Rodrigues: "we will know tomorrow what November is, and many of us aren't very optimistic" asks if it is national
Snyder: "People are seeing it across the board"
GED strong, "but the reality is the reality"
median revenue growth of -1% of 33 states of fiscal year so far
Rep. Ferrante: where do we think the rebound is going to be contributed to that's pushing higher than the risks that we're confronting?
Snyder: the growth is off the FY24 forecast, not off current benchmark
centerist forecast is forecast is "we're not going to see a recession...we're seeing a slowdown"
then feel natural growth from that forecasts, believe this forecast takes into account what we're thinking and feeling right now
what we have now "is more of a slowdown and non-growth"

Treasurer Deborah Goldberg who notes she last saw Rodrigues at the "WONDERFUL groundbreaking in Fall River" (because when you chair the MSBA, you're welcome about everywhere)
and a bunch of this is going to be about the lottery, which actually isn't that much of our revenue (it's about $1B on our $55B state budget...
competition with sports betting, so she thinks the lottery needs more advertising "maintaining market share"
this was a long part...she also wants to change the operational language
I think there's a question the degree to which this has a great deal to do with how much money the state is going to have next year
"have you ever met anyone who finds the stabilization fund exciting?"
historic high of $8.2B
"it will rain again"
tackling long term obligation, including pension liability; lowered actuarial rate, gradually increased appropriation to fund, fully funded by 2036, two years before statutory obligation
annual investor conference
reduce ambiguity of investment, and informed decision making
returning lost property (go check!)
Rodrigues: know you also oversee the Mass School Building Authority; new "innovative process" to help communities facing post-pandemic supply side inflation; any updates?
Goldberg: were able to address many of the issues on how to address, first, the group of communities that were hit hard by COVID related expenses; then looking at lifting the cap; and then we had had to suspend accelerated repair; then removing accelerated repair from the cap, we have opened up a large amount of capacity now and moving forward. "moving forward in a very satisfactory manner"
Met with Gateway cities mayors "it was actually a thank you"
Senator Comerford thanks for the Green and Healthy Public Schools work 
cannabis revenue? 
Goldberg: not sure where it comes into: A&F?
Secretary agrees it is

Doug Howgate, Mass Taxpayers Foundation
high level thinking on this
projecting $880M down for FY24
in FY25, 2.4% over our projection for FY25
looking forward to surtax report for FY23
recommending capping surtax at just over $1B for next year
models are based on slow and steady
what are things we know have changed since we set the projection
Starting behind by $605M
also passed biggest tax relief in a generation (which he thinks is a good piece of legislation)
"both speak to an adjustment downward" in revenue
if continues to go down, will need to work through for FY24
need to better understand how surtax revenue is being taken in as we go
FY25: not projecting a recession, not expecting boomtimes either
positive but moderate revenue growth
2-3% revenue growth projected
says surtax will be volatile and maybe need to have a mini rainy day fund for when it declines
would like to see required contribution for rainy day fund be higher
thinks it necessary to "bring sustainable spending in line with revenue
disconnect between ongoing spending and revenue
Michlewitz: appreciate and share concerns looking ahead
touch upon soft landing; "think that we've tried to be very cognizant of that [sustainable spending]"
are we still with rainy day fund etc concerned?
Howgate: bottom line in some of the fundamentals of where the state is fiscally remains strong
"we've now seen a few consistent budget...with pretty significant year over year spending growth"
how do we look at that in FY25? 
"how do we make sure we ratchet down year over year spending growth"
competitiveness: making sure Commonwealth can follow through on fiscal commitments
cites SOA implementation
Gorzkowicz: put testimony into budget framework; revise FY24 down by $880M; FY25, growing by 2.4%
that puts us about where we are today (for the FY24 budget projection)
in other words, they'd have to level fund the budget if they did that
Howgate: end up back there where we were in '23
Gorzkowicz: what if you saw further decline in November?
Howgate: I probably would adjust the decline further

Alan Clayton-Matthews, Northeastern
"a bit more optimistic"
FY24: estimating 6% above prior (including surtax)
FY25 estimating 5.9% above prior (including surtax)
mild slowdown in 2024 with payroll falling by about 20K from August 2023
GDP and unemployment conform to WSJ survey in October
inflation and corporate profits conform to Federal Reserve
"I believe we'll have a soft landing; I believe we are already landing"
"employers [in MA] have hired all the people there are to hire"
number of people living in Massachusetts and working has been fairly flat
payroll growth has been growing, must be due to people commuting in from other states
"we're great at providing jobs"
growing in terms of working age (over 16) population, but an increasing amount of that population is older and less likely to be working
as Baby Boomers are retiring, it's getting more difficult to replace them
"if families are supported by lowering their child care payments, that's actually going to increase the labor force"
leveling off to more sustainable levels in FY25 in terms of revenue growth
"nominal 6%" growth in FY24 and FY25
Ferrante: important that you pointed out the two challenges: the monetary supply, and the number of people in the labor supply
in last 3 periods, the Fed has used the Personal Consumption Indicator, which seems to have steadied out
that's been about 2.7%
do you think the Fed will start to loosen its monetary policy so that's not constraining the slowdown?
Clayton-Matthews: can't predict Fed, but median expectation is a soft landing
core consumer expenditure growing 3.3% this and 2.6% in FY25
"looks like inflation is being tamed"
how to make people successful here
Ferrante: a lot of focus on costs of migrants in the state, but shouldn't there be a focus on increase in labor supply?
Clayton-Matthews: yes, it's a definite upside
international labor supply "that's a net positive for Massachusetts"
international net migration seems to be picking up for country and state "and I think that bodes very well for the future"
"we've had net migration in Massachusetts since 1630"

Michael Goodman, UMass Dartmouth
discussion of broader economic forecast
"best professional assessment"
state economy has been "remarkably resilient" this year
economic growth to state has exceeded expectations at both state and national levels
state labor market conditions remain extremely tight
incomes have continue to growth "albeit not always at a pace that exceeds inflation for everyone"
out-migration: younger workers and their families
"These do not appear to be families that are subject to the millionaires surtax...or short term capital gains"
future initiatives targeted at "making it easier to live and work in Massachusetts and targeted to those who are actually leaving"
forcing those we need to sustain our economy to seriously considering making a life somewhere else
biggest concern he has about the economy
"nation appears to be on track to a soft landing"
second half of FY24 and into FY25, good reasons to be optimistic
economic growth in the state likely peaked during the third quarter of 2023
will need to coordinate policies that address high costs and labor force
I have no idea who is talking
Q: incentives for those who are leaving?
Goodman: composition of population that appears to be leaving, people under age of 35 or under age of 18
hard look at what is leading people to make this decision to relocate
cost of living: childcare, "certainly is housing"
usually we have a downturn and things are worse here than they are elsewhere; "this is not the case currently"
"the cost of living related to housing is there"
inadequate production of housing in our state in the past generation or so
reduce the stranglehold local communities have on housing
reducing cost of construction
"childcare and access to quality education are a challenge"
"really about retaining and preparing the people that we do have to participate as fully in the labor market"
"reduce the achievement gaps in our urban public schools" where seeing growth and newcomers
Ferrante: alignment between younger workers and jobs available? 
Goodman: can talk about skills gaps; employers tend to bid up skills
employers get flexible when it's hard to find people
"getting K-12 public education right, especially in our urban public schools"
really about "raw material" not having the people we need what needs to get done
Gorzkowicz: below benchmark in sales tax so far this year; how do we reconcile that?
Goodman: change from '23 to '24 is tough to interpret
"a lot of money out there" in '23
"people continue to work off those savings"
have experienced solid income growth, doesn't mean everyone's experiencing it
as prices moderate, should start to see some more equilibrium there
"the consumer has been much more resilient than we've been forecasting consistently"
"there's good reason to be cautiously optimistic"
Ferrante: we did see all kinds of money infused into American households during the pandemic
we've seen those pretty much dry up
will see consumer continue to hold back...
Goodman: I think it depends on the consumer
"I don't see the amount of money I am spending going down"
"We'll see how it goes upstairs, but I think I'm going to get a raise this year"
"I think mileage varies"

And I'm going to need to pick this up later...
hmm...it appears the state doesn't save the video! Oops!
The following is from State House News Service regarding the final bit of testimony: 

Evan Horowitz, the executive director of the Center for State Policy Analysis at Tufts, said the state should lower its estimate of available tax revenues for this fiscal year by $700 million.

"We believe that the weak tax collections which have characterized the early months of FY24 are likely to continue, while we see no reason to expect offsetting winter and spring strength," Horowitz said. "Counting usable millionaires tax revenue, we expect the state to close FY24 with roughly $40.7 billion in total tax collection, roughly $700 million below the current benchmark. That's not a huge gap, and the state could conceivably take a wait-and-see approach. But given expectations of slowing economic growth and broad uncertainty about capital gains and millionaire's tax revenue, we think a downward adjustment is more prudent."