Tisei: Joint revenue hearing kicks off budget season

Although it may seem hard to believe with the calendar only in January, deliberations for the fiscal year 2008 state budget are already underway on Beacon Hill. Each year, budget season formally begins with the so-called Joint Revenue Estimate Hearing. The Ways and Means Committees of the House of Representatives and the Senate hold this hearing. The hearing is co-chaired by the governor’s budget chief, the secretary of administration and finance.

The purpose of the hearing is to reach an agreement between both branches of the Legislature and the governor’s office regarding an estimated amount of tax revenue for the upcoming fiscal year. Legislators hear testimony from local economists regarding what they think the state can expect for tax revenue for the upcoming year. This estimate, once arrived at, will serve as the baseline for the state’s annual budget.

As a member of the Senate Ways and Means Committee, I have always attended the revenue estimate hearing. At the hearing held last week, legislators received testimony from the commissioner of the Department of Revenue, a representative from the non-profit Massachusetts Taxpayer Foundation, which tracks state budget developments, a representative from the Beacon Hill Institute, a more conservative economic think tank, The Federal Reserve Bank of Boston, and an economist from the University of Massachusetts-Boston.

Determining the rate of revenue growth for this year and next is extremely important because it will play a major role in determining how much the state can increase items such as local aid to cities and towns as well as determining spending for state agencies. However, significantly increasing spending in any of these areas will be very difficult as the projected growth in tax revenues for fiscal 2008 will likely be consumed by increases in non discretionary spending accounts such as Medicaid and pensions. In fact, Governor Patrick asked all state agency heads to develop spending plans with cost savings of between 5 and 10 percent of their budgets for next fiscal year.

 There was a general agreement amongst those who testified that there would be between 2 percent to 3 percent growth in the collection of revenue for next year’s budget, which quantified would be close to $600 million. However, the Beacon Hill Institute had a more optimistic view and thought that growth number could exceed 6 percent based upon their projections.

For the current year, the DOR Commissioner predicted that revenue collections might be somewhere around $98 million above the estimate of $19.12 billion put forth by the Executive Office of Administration and Finance this past October. However, the Commissioner also suggested reducing the current year estimate by over $100 million because tax collections for the first half of January are down from last year at this time.

The Massachusetts Taxpayers Foundation predicted that the revenue for FY08 would be in the range of $19.85 billion (3 percent increase), while the Department of Revenue had the lowest projection of $19.69 billion (2.2 percent increase). As previously mentioned, the Beacon Hill Institute was the outlier, with a revenue figure of $20.26 billion for fiscal year 2008, which would be a 6.4 percent growth in revenue over the current year. To put this into perspective, the state’s economy grew by $1.4 billion, or 8.2 percent, last fiscal year. Therefore, even the most optimistic views still show a slowdown in growth of the Massachusetts economy in the months ahead compared to last year.

Although the state’s recent surge in tax revenues will slow next year, there is still some steady growth, although at a slower rate. The governor and Legislature, however, need to remain cautious as it begins the FY’08 budget debate as there are still many financial hurdles to overcome and challenges that lie ahead.

In my opinion, we don’t have as much of a revenue problem as we do a spending problem. It becomes a question of the Legislature having a ferocious appetite to spend every dollar that comes in and then some. We have to live within our means and that means the Legislature needs to set its spending priorities straight. We have the ability to control whether their will be a budget deficit or not in the upcoming fiscal year.

State Sen. Richard Tisei, R-Wakefield, represents the Middlesex and Essex District.