Stock prices were down for much of this year's first quarter and that means investors made less money. When investors are pinched, the Massachusetts government shares their pain because so much of the state's revenue comes from the tax on capital gains.
So the market uncertainty left projections for state revenue—the money the state takes in from taxes—as much as $750 million less than anticipated. And experts suggest they won't recover any time soon.
"Although we have a strong and consistent economy here in Massachusetts, we are always going to have some kind of volatility that we're going to import when it happens on the national stage and on the international stage," Revenue Commissioner Mike Heffernan told WGBH News. "It's going to be really hard to avoid in predicting tax revenues."
Gov. Charlie Baker says the government has all year to come up with ways to balance the books to reflect the new, lower tax estimate. And he isn't too dismayed by the slow growth.
"We're still going to have about 3 percent growth in tax revenue year over year, we're just not going to have 4 percent, which is where we started," Baker said at a press conference last week.
So the budget writers of the Commonwealth are in a pickle. The usual process goes like this: The governor and legislative leaders agree on an estimate for what revenue will look like in the coming year. Then they build a budget around however much money they expect to have available.
But when that money doesn't materialize, they have to go back to the drawing board if lawmakers and the governor hope to get a balanced budget done and on time before fiscal 2017 begins in July.
The House and Senate both already passed their own versions of the budget divvying up roughly $40 billion in slightly different ways. They had just sat down at the negotiating table to agree on a single, final plan to give to Baker when the rug got pulled out from under them: The state just isn't going to bring in enough in taxes to pay for that $40 billion budget.
Now Legislative leaders suggest they'll deliver a trimmed-down spending plan. And for his part, Baker could also offer up a plan to cut way back on spending in order to get in balance with the disappointing revenue numbers.
"I think we're just going to have to work with them to make sure that the budget they send to us and that the budget we sign is balanced based on that new reality," Baker said.
It's happened before, in 2009. You remember 2009: The housing market threw Wall Street into a tizzy and kicked off the Great Recession. In Massachusetts, then-governor Deval Patrick got together with lawmakers to plan the numerous ways they'd have to cut the budget to make things work.
Now, Baker and lawmakers have to come up with some solutions soon. If the final budget gets delayed or doesn't reflect fiscal reality and spends too much, there will be a need for harsher budget cuts throughout the year, and it could damage the Commonwealth's standing with ratings agencies.
Sen. Karen Spilka (D-Ashland), the chair of the Senate Ways and Means Committee and the chamber's chief budget negotiator, told WGBH News in a statement that lawmakers and Baker's budget team "are working together closely to discuss and assess our options." Spilka said the "Big Three" Beacon Hill leaders and their fiscal lieutenants are exploring "reasonable adjustments," and that her priority is to "protect the vulnerable individuals most reliant on programs and services, including veterans, children, seniors and the disabled.”
The House Ways and Means chairman, Rep. Brian Dempsey, (D-Haverhill) also told WGBH News in a statement that he and his staff are "working closely with the Administration and the Senate to identify a variety of solutions to ensure a balanced budget."
