FY26 Consensus Revenue hearing liveblog

 ...will be starting here, though it appears to be the Senate adjourning right now...
I don't write down all the numbers, because I only get them orally

Joint hearing on revenue

Rep. Michlewitz notes that the implementation of the Fair Share amendment will be part of the work of this year
Sen. Rodrigues looks forward to building a responsible partnership with both House and Governor
Secretary Gorzkowicz also noting partnership with chambers

Jeffrey Snyder, Department of Revenue: and there is no way that I am going to keep up with numbers, as ever
SHNS is feeling feisty

TAX FORECAST: After getting blindsided by tax refunds fueled by an FY 2022 tax collections surge that was outside their radar screens, Beacon Hill leaders on Tuesday are calling the same people back to testify on revenue projections for the upcoming state budget cycle. #mapoli

— State House News (@statehousenews) January 24, 2023

he reviews how we got the 62F funding return
lots of uncertainty in projections (as ever)
based in part on projections from Moody's and S&P Global
$1.08B above benchmarks in FY23 
$39.618B 
FY23 revenue $39.767B to $40.471B projected
FY24 includes 4% surtax 
income tax was 59%; sales tax at 21%
unemployment rate of 3% nationally; Mass employment follows similar pattern
income taxes are forecasted to be between 46M lower and 216M higher
and the surtax will impact income tax collection
$183M and $481M higher than the FY23 benchmark
unrealized capital gains a factor
FY23 Fair Share between $229M and $265M; FY 24 between $1.445B and $1.76B

Michlewitz: on surtax opponents said people would flee the state; do we know if they have or too early to tell?
Snyder: Very difficult to tell at this point; "it is top of mind...something we will continue to monitor"
Michlewitz: above benchmark, as we have been; what should we all be watching the most?
Snyder: "I would be looking at wages. That is really going to determine where we end up when all is said and done."
Michlewitz: on 62F, any insight into how far ahead of benchmark, projection as to if it will get triggered again
Snyder: don't have information needed for that
Rodrigues: one time revenue through tax code changes
Snyder: was part of 62F calculations
Rodrigues: tax code not clear on refunds versus credits; how did you decide
Snyder: credit on FY21 tax year resulted in refunds of about 14%
Rodrigues asks about debt ceiling
response is vendors keep in mind; should keep an eye on it

Treasurer Goldberg: rainy day funding up to $7.4B will be up to $8.4B "providing for...when it will rain again"
"did someone hear music? I think it was God emphasizing what I said"
investor demand for bonds remains strong: outlook changed from "stable" to "positive"
Michlewitz: bonds?
Goldberg: outlook to positive due to state management
"when we met with them in December they said 'keep up the good work'"
Goldberg: believe we will see a great deal of volatility
watching the debt ceiling very carefully, and "I think it's very dangerous"
Rodrigues: MSBA, hearing that supply change issues, interest, inflation; are there conversations going on?
Goldberg: feel strongly that we collaboratively need think about price, work outstanding, need 
did increase price per square foot
"but the formula and the cap are what hold us back to a degree"
"are concerned about having to shrink the number of projects when there's so much need out there"
"we know the need is great"

Doug Howgate, Mass Taxpayers Foundation
FY23: recommending modest upgrade
projecting growth of about 1% for FY24
"what happens in the first six months of a fiscal year often doesn't have much to do with what happens in the second six months"
.92% revenue growth for FY24
"we are not going to provide a projection on surtax revenue"
there is no prior data, because we're just starting
lack of information you'll have to build a projection into the budget
expect that it will kick in later in the year as the surtax kicks in as people exceed the revenue putting them into that category
will lack real information until May of next year
will be most volatile in uncertain times; recommend collecting revenue and then spending it
Michlewitz: is DoR's level volatility or more than that?
Howgate: when you talk about the federal government and the debt ceiling... 
Rodrigues perhaps should consider putting cap on surtax revenue as do on capital gains
Michlewitz: are we being overly cautious on capital gains?
Howgate: past two years, pandemic but also growth
revenue hearing is "giving you folks number that are reasonable to budget on"
Gorzkowicz: putting guardrails in given volatility?
Howgate: one challenge is the required use of those funds
how do we we demonstrate to the public that it is going to intended purposes

Prof. Alan Clayton-Matthews of Northeastern
time for the least exciting slides ever!
projections for FY23: $39.208B
for FY24: $42.224B
projections for surtax in FY23: $527.8M
FY24: $1.116B
assumes a mild slowdown with 2 quarters of zero or negative GSP growth and 4 quarters of declining employment
Michlewitz asks about surtax
Clayton-Matthews: "it is unknown, but relative to swings in capital gains revenue...it is less than that"
"just because a revenue source is volatile doesn't mean it's not useful"

Prof. Michael Goodman, UMass Dartmouth
will discuss broader economic context 
"this experience is not unique to Massachusetts"
33 of 41 states experienced budget growth above their original budget projections; "it wasn't just us"
likely that the pace of revenue growth likely will not be sustainable
encourage to carefully consider short and long term risks
"slow session" is how Moody describes it
interest rate connected sectors will be challenged
Tech sector grew and hired rapidly; slow
wild cards:
Looming debt ceiling crisis, very real possibility of a self-induced financial crisis
future federal monetary policy
expanded conflict on eastern Europe; oil and natural gas prices set in a global market
re-emergence of pandemic conditions; vaccinations and resistance has made a real difference; should there be another resurgence, unclear that federal government could respond
Policy issues: core competitive advantage of Massachusetts remains its people; more important than ever we make it easier for people to live and work here
housing, child care, education, training
"it remains very difficult for many of our colleagues and neighbors to make ends meet"

Evan Horowitz, Center for State Policy Analysis at Tufts University
tie between GDP and state tax revenue 
$40.2B in FY24; important how to distinguish between money generated and money that is overall impacted
projecting some loss of revenue due to tax avoidance
enough millionaire tax revenue should be included to cover the projected loss
should create savings plan as is done with capital gains
FY22 "saw a dramatic clash of forces"
avoiding 62F helps avoid chaos of last year but also means days of overflowing coffers are likely ending
likely to end year with shortfall of $1B this year; foreseeing April collections

AND THAT IS A WRAP! 

Crushingly disappointing

...to read Mass Taxpayers recommending that the state put off implementing the Student Opportunity Act a year...

AND as you're watching this, note what New York did with their CARES Act funding, such that the highest poverty districts again are bearing the brunt of the economic hit (again):

Atchison found that the highest poverty districts lost out the most because of the budget crunch. New York City ended up with about $900 less per student in state funding than it would have received; even with the one-time federal relief money, the city will get $200 less per student than if Cuomo’s previous proposal had been enacted. Affluent Scarsdale, meanwhile, ended up with just $15 per student less.
Rochester City schools, a district with one of the state’s highest child-poverty rates, missed out on $1,600 per student in state funding, and even with federal help is getting $230 less per student than it would have. One of Rochester’s wealthy suburbs, Fairport, actually ended up with more, counting federal aid.

Opportunity delayed is...

MassBudget nails it in their analysis of the Governor's budget in a report entitled "Opportunity Delayed" (The common phrase is "opportunity delayed is opportunity denied) regarding the lesser implementation of the low income rate:

...not all of the SOA reforms are consistently or equitably phased in by the Governor’s proposal despite this goal being outlined in the law. One critical area that is not on track — increased support for students from low-income families through Low-Income Rates. In his FY 2021 budget proposal, the Governor only delivers on 4 percent of the progress towards the SOA target. This leaves 96 percent of the change left to be accomplished over the next six years.
According to a preliminary analysis of the funding proposal, slowing the low-income rate progress down to 4 percent from 14 percent, results in a reduction in aid of $73.6 million.4 This reduces the capacity of districts educating children who are economically disadvantaged, to enhance services, expand opportunities, and promote achievement. The Commonwealth would need to increase Chapter 70 aid by $377.1 million (24 percent more than Governor Baker proposed) to phase-in low-income rate increases at an equal pace as the other components (see chart below).
The Governor’s proposal to increase low-income rates 4 percent towards the target in the first year, while leaving an average of 16 percent each year to follow, does not meet the objective of consistent implementation. This is particularly true when the other areas are moving an even 14 percent towards the goals of the SOA.

The Boston Globe covers this report today. The Mass Taxpayers' quote is interesting as they, as I mentioned earlier, agreed with the MassBudget analysis when they presented for the Connecticut Valley superintendents.
And school committees? A good thing to pay attention to and weigh in on.
PS: Worcester? It's on next week's agenda.

MASBO February meeting, in sum

as sent out over the MASC list-serv

I don’t think this rises to the level of a full “Novick Reports,” but I did want to pass along a few notes yesterday from MASBO’s February meeting, particularly as it focused heavily on state budget issues.

The Mass Taxpayers’ Foundation opened with an analysis of both FY17 and FY18 (my notes are here). There was a particular emphasis on the gap between revenue and expenditures, and in particular the increasing costs of MassHealth.

Jay Sullivan from DESE gave his update (notes). Along with reminders of due dates and reports, he did give some projections for FY18 based on the Governor’s budget (‘though he also reminded us that the Governor’s budget isn’t the end). Do note that the charter reimbursement percentage he gave of 73% bundles in the facilities funding, so that’s not really the number you’re looking for. He did also flag coming changes due to ESSA on how Title I works.

Melissa King of DESE gave an update on the Governor’s budget (notes). In addition to what you already know, she did note that this year 92 districts are getting foundation aid; the remainder of districts are getting hold harmless aid plus the (Governor’s) $20/pupil increase. That brings the amount of funding from the state over foundation aid to over $400 million.

They invited Roger Hatch (now retired) to reflect on state funding of education (notes). Overall, he pointed to the difference having a foundation budget has made from a state budgetary perspective: it pulled equity into the equation (when making additions or cuts), which had not previously been the case, and it established a floor beyond which the state can/does (?) not cut when it comes to education funding.

The school business officials continued their work on data management (in concert with DESE) in the afternoon; a peek at that is here.

Mistakes, as always, mine, and questions welcome.

MASBO February meeting: Perspective on the next state budget from Mass Taxpayers

Eileen McAnneny, President of Mass Taxpayers
Trifecta of budget challenges: revenues slowing, non-discretionary spending growing, need to replenish reserves
happening during economic recovery