April tax receipts crash, state deficit nears $1 billion

By 
Jim O'Sullivan and Michael Norton, State House News Service
May. 4, 2009

Less than three weeks after estimating a deficit as high as $550 million for the rest of the fiscal year, Gov. Deval Patrick said Monday that the actual gap could hit $953 million, as state tax collections fell at warp speed last month, nearly $1 billion below April 2008 and $456 million shy of already downgraded projections for the month.

Last month's state tax collections plunged nearly 35 percent below last April and more than 20 percent below budget benchmarks that have already been lowered three times this fiscal year, most recently in mid-April, but which have failed to catch up with reality. The trend illustrates how precipitously the state’s economy has declined, and the challenge facing policymakers who have less than two months to bring into balance an operating budget for which they have already closed a $2.5 billion gap.

Income tax collections in April tumbled 40.7 percent, or $905 million. Sales and use tax collections were down 8.2 percent for the month. Through the first 10 months of the fiscal year, tax collections are down $1.94 billion, or 11.3 percent, from the same period last year.

Emerging from a Monday afternoon meeting with Gov. Deval Patrick and House Speaker Robert DeLeo that she called "very somber," Senate President Therese Murray told reporters, "That means we're going to have to go back and figure out how to pay for [fiscal 2009] and cut some more, and not pay for some other things that we had hoped to pay for, and that means that [fiscal 2010] will be revised even lower than we expected."

The administration has not announced a plan to close the hole.

“We’d like as much as possible to get agreement on that plan before we file,” Patrick said, adding that the plan would be filed “in a couple of days.”

The state, unlike the federal government, cannot run a deficit.

"The very key point about the solves for the current budget gap is to close the gap," Patrick budget chief Leslie Kirwan told reporters.

Administration officials said that state agencies have spent over 80 percent of their budgets for the fiscal year, leaving little room for reductions. Asked later whether the administration could opt to balance its fiscal 2009 budget by trimming a massive local aid payment, Kirwan initially declined comment, but later said the administration was “trying to avoid passing it on to cities and towns.”

“It certainly would be way down the list of options for closing the gap,” she said.

The state is scheduled to make a $1.16 billion payment to cities and towns in June.

Senate budget chief Steven Panagiotakos identified federal economic stimulus funds and state rainy day reserve funds as options for plugging the year-end holes in the fiscal 2009 budget, saying the state would “certainly” have to pull from reserves.

Panagiotakos told the News Service later that the state would prefer not to trim local aid further.

“It’s an option, but I don’t think it’s one that’s embraced at this point in time,” Panagiotakos said, adding that local aid would likely see cuts next year’s spending plan. “We’re trying not to go any further in [fiscal 2009]. We’re trying to get out of this with other solves, and I think we can.”

Murray said the leaders did not discuss Patrick's veto threat against a sales tax hike without new reforms, which roiled budget debate last week after the House approved a 25 percent increase. She also brushed off a question about Patrick making electoral hay from his legislative colleagues.

“I’m not going to respond to any of that,” Murray said. “We have such a crisis, a fiscal crisis in front of us that it’s imperative that we all work together to resolve this.”

Patrick said the diving revenues would likely not prompt him to revisit his revenue proposals, but the spending side of the budget instead.

The new numbers show that earlier revisions were far off the mark, as the steep drop in income tax collections dragged a troubled fiscal year even further into the red than the administration and lawmakers had disclosed.

“The April shortfall is almost certainly the result of a decline in capital gains taxes, with a drop in interest and dividend income also likely playing a role,” said Revenue Commissioner Navjeet Bal.