Massachusetts Municipal Association 2010 Conference January 22, 2010.

Massachusetts Municipal Association

2010 Conference

January 22, 2010

Department of Revenue 2

Massachusetts Department of Revenue

FY10 Revenue Update

FY11 Revenue Forecast


FY09 Revenue

The FY09 CRE of $21.402 billion was revised downwards 4 times beginning in October 2009 through May 2009, and actual revenues in FY09 came in at an estimated $18.259 billion

12.5% drop from final FY08 revenues of $20.888 billion

$3.2 billion less than the original CRE for FY09


FY09 Revenue

75% decline in capital gains tax revenues, from $2.1 billion in FY08 to approximately $500 million in FY09

$148 million (1.6%) decline in withholding receipts Sales tax declined $218 million or 5.3% to $3.9b

Within that category, MV sales tax fell 12.4% or $62m Meals tax fell $3m or .5% Other sales tax receipts fell 5.2% or $15

Corporate and business tax collections fell $450m or 17.6%


FY10 Revenues

Economy expected to begin slow recovery in FY10. FY10 budget assumed 18.879 billion in revenues, including:

impact of sales tax rate increase Lifting of sales tax exemption for sale of alcohol Taxation of satellite TV subscriptions

FY10 Revenues now estimated to be $18.460 billion Actual increase of 1.1% over FY09 – mostly reflecting

the sales tax rate increase “Baseline” decline of 3.5% - backing out tax law changes


FY11 Revenues

FY11 estimate assumes that the national and state economies will continue a moderate recovery throughout the fiscal year.

FY11 consensus tax revenue estimate is $19.050 billion Actual revenue growth of 3.2% over FY10 2.5% baseline growth – first baseline growth in

since FY08


Economic Indicators - GDP Real GDP growth turned positive in the third

quarter of calendar 2009 and grew at an annualized rate of 2.8%

GDP is expected to remain positive in the fourth quarter and through calendar year 2010. Real GDP growth for the full fiscal year 2010 is

projected to be 0.4% compared to growth of 2.2% in FY08 and -2.2% in FY09.

In fiscal year 2011, real GDP growth is projected to range from 2.4% to 2.7%;


Other Economic Indicators Employment

FY10 – Decline by 1.8% to 3.2% FY11 – Change by -0.6% to 0.5%

Personal income (excluding capital gains) FY10 – Grow by -1.9% to -0.1% FY11 – Grow by 2.6% to 3.5%

Wages and salaries FY10 – Decline by 1.7% to 5.1% FY11 – Growth from 1.1% to 3.4%


Other Economic Indicators

Retail sales FY10 – Decline by -0.4% to -1.9% FY11 – Grow by 3.5% to 4.4%

Corporate profits at the national level (there are no forecasts for state corporate profits) FY10 – Increase by 3.8% to 22.6% FY11 – Grow by 2.9% to 6.4%

Capital Gains revenues FY10 – Increase by $160 million over FY09 FY11 – Increase by $97 million over FY10


Municipal Revenue State TotalsRevenues by Source

52.88%

24.37%

18.28%

4.47%

Tax Levy

State Aid

Local Receipts

All Other


State Total Motor Vehicle Excise

Fiscal Year Budget ActualAverage Age

of Vehicle

2007 660,302,818 636,886,142 9.83

2008 639,928,569 686,792,104 10.12

2009 636,731,678


State Total Motor Vehicle Excise

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2007 2008 2009

In M

illio

ns

Budget

Actual


Investment Income

0

50

100

150

200

250

2007 2008 2009

Mill

ions

Budget

Actual


Statewide Levy Growth

0.0

50.0

100.0

150.0

200.0

250.0

2007 2008 2009

Mil

lio

ns


New Local Option Meals ExciseRevenues for October (smallest to largest)

DOR Code Municipality

Effective Date

December Local Option Meals Distribution

289 SUNDERLAND 10/1/2009 2,640.08

33 BLANDFORD 10/1/2009 2,949.97

227 PALMER 10/1/2009 7,541.55

346 WINTHROP 10/1/2009 7,737.29

74 DEERFIELD 10/1/2009 7,883.47

278 SOUTHBRIDGE 10/1/2009 8,535.87

178 MELROSE 10/1/2009 11,150.47

238 PLAINVILLE 10/1/2009 13,283.22


301 TYNGSBOROUGH 10/1/2009 16,121.25

117 HADLEY 10/1/2009 21,115.06

23 BEDFORD 10/1/2009 23,032.23

245 RAYNHAM 10/1/2009 23,586.13

17 AUBURN 10/1/2009 24,380.92

93 EVERETT 10/1/2009 27,851.13

101 FRANKLIN 10/1/2009 30,111.29

8 AMHERST 10/1/2009 31,376.38

56 CHELMSFORD 10/1/2009 32,358.88

293 TAUNTON 10/1/2009 42,138.59

176 MEDFORD 10/1/2009 42,759.82

61 CHICOPEE 10/1/2009 42,871.89

72 DARTMOUTH 10/1/2009 44,750.00


214 NORTHAMPTON 10/1/2009 45,874.59

325 WEST SPRINGFIELD 10/1/2009 55,805.25

274 SOMERVILLE 10/1/2009 60,854.69

262 SAUGUS 10/1/2009 62,678.62

46 BROOKLINE 10/1/2009 69,097.88

281 SPRINGFIELD 10/1/2009 113,323.74

348 WORCESTER 10/1/2009 152,737.62

49 CAMBRIDGE 10/1/2009 256,811.97

35 BOSTON 10/1/2009 1,493,154.22

Executive Office for Administration and Finance

State HouseRooms 373 & 272

Boston, MA 02133

FY10 Budget Update MMA ConferenceJanuary 22, 2010


Administration and Finance

Agenda

• Budget Update – LeeAnn Pasquini, Budget Director FY09 Close Out FY10 Update FY11 Planning and H.2



FY2009 Close OutThe Challenge Faced

• FY09 saw 4 major revenue revisions which totaled $3.14 billion or a 12.5% decline in tax revenue from FY08.

• On top of declining revenue, spending exposures needed to be addressed through supplemental funding and transfers.

Jul-08 21,403Oct-08 20,303Jan-09 19,450Apr-09 19,333May-09 18,436Jun-09 18,259

Total Change (3,144)* Dollars in millions



FY2009 Close OutThe Solutions

• Solutions in Fiscal Year 2009 totaled $3.9 billion Budget Cuts Totaled Approximately = $1.3 billion

o Approximately $1 billion came from 9C reductions and voluntary contributions from non-Executive Branch agencies

Use of State Stabilization Funds = $1.4 billion Use of Federal Stimulus Funds = $1.3 billion

o This includes approximately $900M in enhanced federal Medicaid matching funds (FMAP) and $400M in federal fiscal stabilization funding (for education)



FY2009 Close OutFiscal Management

• Through strict fiscal management including FTE caps and detailed review of all BGTS and Allotment requests the year closed with enough funding to: Meet our statutory carry forward for cash flow; Transfer $10 million to the Life Sciences Fund; Use of surplus to help address the FY10 revenue revision.

• Our closing FY09 balance in the stabilization fund is $841 million.



FY09 Close OutStabilization Fund Balances

Massachusetts Stabilization Fund - 10 Year Snapshot

$882

$641

$1,1

37

$1,7

28

$2,1

55

$2,3

35

$2,1

19

$841

$582

$1,6

08

$1,7

15

$-

$500

$1,000

$1,500

$2,000

$2,500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Do

llars

in M

illio

ns



FY2010 Update• In early October, DOR announced a $212 million shortfall in tax revenues for the first quarter of

FY10.; Following consultation with the state Department of Revenue and his Economic Advisory Council, Governor Patrick reduced revenue projections for the entire fiscal year by $600 million.

• Consistent with prior recessions, growth in the main drivers of state tax revenues – employment, wages, taxable sales, and corporate profits– is expected to lag the economic recovery. This is because even as the economy grows, businesses remain cautious and do not resume hiring until they are certain that the economic expansion is sustainable. And until hiring picks up, wages (and the taxes paid through withholding on wages) will not grow and consumers will not increase their spending on taxable goods.

• While the stock market has staged a strong recovery over the past six months, capital gains realizations are still projected to decline in tax year 2009, which will be reflected in FY10 capital gains taxes.

• According to an October 2009 report from the Center for Budget Policy and Priorities, revenues have fallen short of projections and resulted in mid-year budget deficits in 26 states, totaling $16 billion or 4% of these budgets.



FY2010 UpdateFY10 Challenge and Solutions To Date

FY09 Spending 27,373.7 FY10 GAA 26,930.1 PACs 92.3 Supplemental Budgets Signed 262.5 9C Reductions (292.2) 9C Restorations 43.9 Deficiencies Recognized (not yet appropriated) 426.1 Surpluses Recognized (75.0)FY10 Estimated Spending 27,387.7

FY10 GAA (% Change from FY09 Spending) -1.62%FY10 Estimated Spending (% Change from FY09 Spending) 0.05%

In the fall of 2009, A&F completed a detailed review of all fiscal year 2010 spending and revenue assumptions. Throughout the first half of the fiscal year there were several changes that have had an impact on the bottom line of the budget.



FY2010 UpdateContinuation of Fiscal Management Processes

• FTE caps continue to be used FY10 additions carefully reviewed in an effort to evaluate their impacts on FY11 and in

most cases denied. Contractor hires will continue to be evaluated as to continue to meet our legal

obligations around the use of contractors versus FTEs.

• Budgetary Transfers Carefully Reviewed

• Allotment Schedule – Bi-monthly allotments employed



FY11 H.2 Development

• Increases in revenues over this year expected to be modest

• Although economy recovering, tax revenues lag.

• FY10 budget relies on nearly $1.9 billion of one-time resources

• Continuing spending pressures



Fiscal Year 2011 Budget Shortfall

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

Revenues Expenditures

Mill

ions

FY11 Maintenance

Spending Increases Net of 9c Reductions:

$1.4 Billion

FY10 Spending Supported One-time Resources

$2.5 Billion

Non-tax Revenue $500 - $550 Million

Fiscal Year 2011 Budget Gap Projected to be $2.7

billion

Tax Revenue - $590



FY11 H.2 Released

• January 27, 2010

• Online budget – www.mass.gov/governor/budget

• Issues in Brief

• Companion Legislation

• FY10 Supplemental Funding

Massachusetts Municipal Association 2010 Conference January 22, 2010.

Documents

Massachusetts Municipal Association 2010 Conference January 22, 2010.