Forecast is $600m shortfall for state

Lag in consumer spending cited

Associated Press / October 9, 2009

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Financial specialists offered a sober outlook for the state’s revenues yesterday, saying Massachusetts may fall up to $600 million short of projected tax collections in the current fiscal year, forcing another round of painful budget cuts.

State Revenue Commissioner Navjeet Bal said at a public hearing that she may recommend that the Patrick administration lower its projections for the year by $400 million to $600 million.

The warning was issued after tax collections in September fell $243 million below projections, but before an Oct. 15 deadline for an official, revised revenue figure for the fiscal year that began July 1.

Depending on how much revenue estimates are reduced, Governor Deval Patrick may go back to lawmakers to ask for the power to make midyear cuts to the budget.

Patrick was forced to take similar action last fiscal year, as revenues plummeted over the year.

Part of the reason for the sluggish return to growth are gun-shy consumers who are less willing to part with their cash than before the recession hit.

“Consumers clearly are being cautious,’’ Boston Federal Reserve economist Yolanda Kodrzycki said during the hearing at the State House.

Kodrzycki said the recession “has turned out worse than expected,’’ making it hard to develop budgets earlier this year.

The picture for the 2011 fiscal year that begins next July is not much rosier. The Massachusetts Budget and Policy Center released a report this week. It said that the state was able in part to close the budget gap with spending cuts combined with fee and tax increases, but that it wasn’t enough. Those measures accounted for just 60 percent of the solution.

The report said the situation would have been far worse without federal stimulus dollars and the state’s own rainy day fund, which accounted for the other 40 percent.

“The state will have limited resources available to it as it crafts the FY 2011 budget,’’ the report said.

“One option is to continue to dip into the temporary sources that are still available,’’ the report added. “A second is that Congress passes another fiscal relief bill; and the third is to lower spending, or raise taxes, or both.’’