BOSTON, Mass. (SHNS)–When a long-delayed state financial report is released later this week, it will tell “a story of an extraordinary amount of revenue,” Comptroller William McNamara said Wednesday.
State tax revenues soared over the last two years as Massachusetts has emerged from the pandemic, and the details and impacts of that dynamic are laid out in the annual Statutory Basis Financial Report (SBFR), a comprehensive document accounting for nearly all aspects of the state’s finances.
The report, which McNamara’s office briefed the Comptroller Advisory Board on Wednesday, is expected to be released publicly Friday after board members have a chance to provide feedback.
After growing by about 15 percent in fiscal year 2021, budgeted fund tax revenues jumped up by another 21.5 percent in fiscal year 2022 to $38.587 billion, which was $6.383 billion more than the Baker administration and legislative leaders initially estimated for the year and still $5.925 billion above the administration’s final estimate.
Personal income tax collections of $24.336 billion helped to fuel the state’s revenue surge — they were up $4.718 billion or 24.1 percent while personal income tax withholding was up $1.196 billion or 8.1 percent. Capital gains tax revenue was up just more than 50 percent last budget year, corporate and business tax revenue was up 23 percent, sales and use taxes were up almost 14 percent, cannabis sales and excise tax revenue was up nearly 41 percent, and estate tax revenue was up just more than 10 percent.
Tax revenues were up by so much in fiscal year 2022, that they exceeded the tax cap put in place by a 1980s law known as Chapter 62F by $2.941 billion and the state had to refund that amount to taxpayers this fall.
“For all folks that filed [their income taxes] on time, those checks were all mailed out as of two Fridays ago,” Administration and Finance Secretary Michael Heffernan said Wednesday.
Just looking at revenues minus expenditures, the state realized an operating gain in fiscal year 2022 of $6.1 billion in budgeted funds (on top of a gain of $7.8 billion the year prior) “due primarily to strong growth in tax revenue” and the year ended June 30 with a consolidated net surplus of $4.812 billion, the comptroller’s office said.
Those results “contributed the showing that Massachusetts experienced a strong economic recovery from the COVID-19 pandemic,” Assistant Comptroller and Chief Financial Reporting Officer Pauline Lieu told the Comptroller Advisory Board on Wednesday.
And the state’s Stabilization Fund grew during fiscal year 2022 from about $4.626 billion on July 1, 2021 to more than $6.937 billion on June 30, 2022 — growth of $2.311 billion or about 50 percent.
McNamara said that the SBFR will tell “a story of an extraordinary amount of revenue, both state-generated tax revenue and continued strong flows from the federal government.” And the overview of the report that his office provided Wednesday also shined a light on what he called the “maybe more unusual transfers and other uses that were related to that or were made use of with that large set of inflows.”
Among those “more unusual transfers” was the fact that the state’s year-end $4.8 billion surplus was not transferred into the Stabilization Fund as would normally be the case. Instead, the final close-out budget passed by the Legislature and signed by Gov. Charlie Baker directed that money to be deposited into a Transitional Escrow Fund to be reappropriated in fiscal year 2023.
Heffernan said the escrow account “acts almost as a stabilization fund on top of the Stabilization Fund.”
The $2.941 billion that has been refunded to taxpayers through Chapter 62F was paid out of the state’s General Fund, senior advisor to the comptroller Howard Merkowitz said.
“Eventually, presumably, depending on what revenues are in FY23, that could be funded by a transfer from transitional escrow, but I think that depends on the overall budget situation,” Merkowitz said. “As of now, those refunds were paid out of the General Fund.”
The SBFR is due from the comptroller’s office each year by Oct. 31, but this is the sixth consecutive year in which it has been filed late, often to the frustration and disappointment of the comptroller.
In order to meet the Halloween deadline, McNamara and previous comptrollers have urged lawmakers to pass the annual close-out supplemental budget bill by the end of September to give his team and outside auditors sufficient time to prepare the report. This year, Baker filed the final close-out budget on Sept. 1 and lawmakers did not send it back to his desk until Nov. 1. It was signed on Nov. 10.
McNamara said Wednesday that his office had to execute some final transactions for the year after the close-out budget was signed and was not able to begin its work on the SBFR until just before Thanksgiving. He said he approaches any discussion of the timing of the SBFR with “a very strong respect for the complexity of budgetary policy, and the prerogatives of elected officials in both the executive and the legislative branches to set their calendars.”
“That being said, it’s clear that the SBFR’s statutory deadline of October 31 is simply not achievable when the process extends well into the autumn. Taking the earlier 2000s as an example, I know that following the June 30 fiscal end date, each of the key steps in the process has a historic record of starting and ending earlier than in recent years. That includes the submission of the budget proposal by the executive, the timing of legislative debate and action, and enactment and signature,” McNamara said. “There are truly exceptional circumstances in which the timing is difficult, such as the first year of the pandemic. But otherwise, I believe that earlier timing can be achieved if it’s made a priority.”