Larger state deficit predicted due to near-static tax revenue
State officials and fiscal analysts yesterday predicted relatively small increases of 2.4 percent to 4.1 percent in state tax collections next year, saying the rise will not be enough to close a projected budget gap for the 2009 fiscal year that could top $1 billion.
"What this says for the fiscal '09 budget is that the Commonwealth is in deep trouble," said Michael Widmer, president of the Massachusetts Taxpayers Foundation, who is warning the shortfall could balloon to $1.5 billion because of spending increases that are built into the budget.
The slowing economy, stagnant corporate profits, and declining capital gains are sparking the state revenue dip, said several who testified at a State House hearing yesterday.
In addition, though poised to post its highest revenues ever, the state lottery will not be able to meet overly optimistic expectations built into the budget or continue to grow in the future, said State Treasurer Timothy Cahill. The lottery provides about $900 million to cities and towns, which have come to expect annual increases, said Cahill.
The officials and fiscal analysts appeared before a joint hearing of the Senate and House Committees on Ways and Means, who are working to come up with a revenue estimate that will guide Governor Deval Patrick and lawmakers as they put together next year's budget. Patrick is expected to unveil his budget plan on Jan. 23.
All the fiscal analysts predicted revenues would grow modestly in the next fiscal year, which begins July 1. In a budget of more than $20 billion, the differences among estimates were relatively minor.
Widmer had the most pessimistic projection - 2.4 percent growth from fiscal year 2008 to 2009 - while the Beacon Hill Institute, a conservative think tank, offered the most optimistic estimate, 4.1 percent.
The predictions of lower revenue led lawmakers to raise questions about potential new revenue generators, such as casinos, and the governor's proposal to close corporate loopholes.
Cahill predicted casinos could "produce a tremendous amount of revenue" for the state based on the spending habits of Massachusetts residents who, he said, spend far more on the lottery per capita than residents of any other state.
"I think they will be very, very successful," he said.
He acknowledged that introduction of casinos would hurt the lottery in the short term, siphoning off between 3 to 8 percent a year. But ultimately, he predicted, lottery players would return.
Cahill was asked whether the state should now sell the lottery to private investors to reap a huge windfall, a proposal recently floated by some Republican lawmakers. Cahill said interest has evaporated since last summer, when several investment firms were offering billions of dollars to buy or lease the lottery.
He suggested that the state instead look for ways to undo the built-in deficit that has been created by state employee health insurance and pension costs that are growing faster than revenues.
"We cannot pay for them indefinitely," he said. "It's not possible. We do not have the structure in place to support these programs at the level we desire."
Jonathan Haughton of the Beacon Hill Institute suggested the state raise the 23.5-cent-per-gallon gas tax and impose more fees on highway and bridge users, suggestions also made by a recent legislative Transportation Finance Commission.
Meanwhile, voters next fall could be asked to eliminate the most basic source of state revenue, the income tax.
Secretary of State William F. Galvin yesterday ruled that proponents of a ballot question that would repeal the state income tax had collected more than the 66,593 signatures required to send the petition to the Legislature. If lawmakers fail to vote on the matter before May 6, proponents can put the question on the Nov. 4 ballot by collecting 11,099 more signatures by July 3.
When it last appeared on the ballot in 2002, the measure was defeated, but received more than 45 percent of the vote. 