Tax revenues

Consensus forecast

Administration and legislative leaders have reached consensus on a tax revenue forecast of $14.678 billion. This estimate is only a 0.2 percent increase ($30 million) over expected Fiscal Year 2003 revenues and baseline growth of 1 percent – less than the rate of inflation. Economic recovery is not assumed in this consensus.

Baseline growth in the 1989-1991 recession initially plunged and then recovered. A similar trajectory is projected for the current fiscal situation, but starting from a more rapid rate of contraction: from -10 percent in 2002 and then rising to 1 percent in 2004.

Baseline Revenue Growth

Risks and uncertainties

Compared to outside expert opinion, the consensus forecast of tax revenues is a conservative one that reflects uncertainty about economic recovery and world political stability.

Further decline in capital gains and corporate profits taxes – which fueled the Fiscal Year 2002 tax dive – has been discounted to the point that additional risk is low. Remaining risk can be attached to a more dramatic decline in employment than experienced to date – in other words, an accelerating downward economic cycle.

Non-tax revenues

Rationalized fee structures

Based on a comprehensive review, the Executive Office for Administration and Finance determined that the Commonwealth’s fees have generally not kept pace with inflation and that certain fees do not cover the costs of the services they support. A rationalized structure better aligned with current market conditions is reflected in the Romney budget. The overall budgetary impact is $59 million.

Federal revenue

In 2003, the Commonwealth will receive $4.6 billion – about 20 percent of the overall budget – in reimbursements from the federal government. About $3 billion is for Medicaid expenditures, which are generally reimbursed at a rate of approximately 50 percent.

Massachusetts receives more than $459 million in block grants for the Temporary Assistance to Needy Families (TANF) program. To receive the grant, the Commonwealth must spend about $359 million of appropriated funds on the program. TANF assistance is provided to needy families through a variety of programs administered by departments across state government.

Casino Gambling

In order to avoid building costly new casinos that would create excess regional gaming capacity, Massachusetts will negotiate for $75 million in revenue sharing payments from casinos in neighboring states. If unable to secure the appropriate payment, the Commonwealth will pursue the introduction of video lottery games at existing gaming sites.