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State may see $200m shortfall

Tax revenue drop could force more budget slashing

By Matt Viser
Globe Staff / September 29, 2009

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State tax revenues are on pace to fall as much as $200 million below projections this month, signaling a disappointing year in tax collections that could trigger new rounds of emergency budget cuts, preliminary figures show.

The projected shortfall, based on figures from the state treasurer’s office, may require Governor Deval Patrick to slice hundreds of millions more from this year’s budget, which he signed only three months ago. It would be the fourth time in a year that Patrick has been forced to make midyear cuts.

The lagging revenues, despite increased taxes this year and signs of life in the state economy, could hurt Patrick politically as he heads into a reelection campaign next year. His opponents, running on themes of fiscal responsibility, argue that they would be better than Patrick at guiding the state out of its economic doldrums.

“We’re obviously watching the revenues very, very closely, and I don’t want to say anything about where we are until we get the final figures,’’ Patrick told reporters yesterday before heading into a meeting with House Speaker Robert A. DeLeo and Senate President Therese Murray. “We have a whole host of different scenarios, as you can imagine, that we have thought about and reflected on because we want to be prepared.’’

Asked whether there would be further cuts to local aid, which is the lifeline for many cities and towns, Patrick said, “I think it’s too soon to say.’’

With only two days remaining in September, the state has collected $316 million less than anticipated, according to calculations by the state treasurer based on the actual taxes deposited daily by the Department of Revenue. State revenue officials estimate that $92 million will be collected today and tomorrow, which would leave a shortfall of $224 million.

Several variables remain, and state treasury officials estimate that revenues will finally be $100 million to $200 million below expectations.

The figures must be finalized early next month. The governor, working with legislative leaders, has until Oct. 15 to revise the revenue estimates for the rest of the year. A lower revenue estimate would probably trigger cuts to the budget, to keep it balanced.

Administration officials declined to comment on the estimates, but a top State House official familiar with budget deliberations predicted that tax collections would be off by at least $150 million.

“It’s looking rather bleak,’’ state Treasurer Timothy P. Cahill, who is planning to run as an independent against Patrick in next year’s election, said in an interview. “This should sound the alarm. I certainly would be concerned in terms of spending going forward. I don’t know whether the administration has the time to wait to cut if these numbers are indicative of what’s to come.’’

Over the first two months of the fiscal year, July and August, tax collections were more than $30 million above expectations. But September, when school is back in session and spending typically increases, is often the early bellwether of how the fiscal year is shaping up.

“September is always the month where you get your most revenue,’’ Murray said yesterday after meeting with DeLeo and Patrick. “So if we’re down significantly in September, that doesn’t probably bode well for the rest of the fiscal year.’’

The state’s budget problems are compounded by the fact that Patrick and top lawmakers have relied in large part on one-time revenues to plug the previous budget gaps, using federal stimulus money that will dry up next year and a state reserve fund that is dwindling. Additionally, economists have warned that the state is in a multiyear cycle that will continue to strain budgets until at least 2014.

“Oh, Lordy,’’ said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, when told of the estimates. “Numbers like this for September suggest [the state’s revenue estimates] could be $500 million or more too high for the year.’’

Revenue dropped despite a controversial decision by Patrick and the Legislature to increase taxes by more than $1 billion, including boosting the state sales tax from 5 percent to 6.25 percent. Retailers warned that the state would not raise nearly as much as estimated, predicting that customers would go to New Hampshire or the Internet to avoid additional taxes.

This is the first month of tax collections that will reflect the new sales tax increase, but revenue figures have not been finalized and released in detail, so it is unclear how much of a dropoff that accounts for.

News of September tax collections was released as the Patrick administration’s top budget chief is leaving for a new position at Harvard University. Patrick announced last week that Leslie A. Kirwan, secretary of administration and finance, was submitting her resignation after guiding his administration for the past 2 1/2 years.

The projected revenue drop indicates that the effects of the national recession are still being felt deeply in Massachusetts. Last fiscal year, which ended June 30, revenues dropped billions below initial expectations. Patrick administration officials say they have eliminated about 1,400 positions.

“At the state level and the public sector, we still have enormous challenges ahead of us,’’ Patrick said yesterday afternoon, pointing to signs of an uptick in the economy. “But we are confident that we’re on the right course, that we’re pointed in the right direction, that better times are ahead.’’

Matt Viser can be reached at maviser@globe.com.