The recently released House Ways and Means Budget draft relies on the consensus revenue forecast developed earlier this year. This forecast appears slightly optimistic.
The concensus forecast is developed each year in January, following December hearings. The Department of Revenue prepares a briefing book summarizing economic forecasts.
If you look at page 3 of the FY13 briefing book, you will see that economic forecasting vendors estimated FY13 revenues at between $21.612 billion and $21.763 billion. The concensus estimate — that the legislature and the Govenor jointly settled on — is slightly more optimistic at $21.950 billion. See the “Executive Summary” of the House Ways and Means Budget.
The vendor forecasts of Massachusetts Growth State Product growth in FY13 ranged from 1.7 to 3.6%. The forecasting vendors projected that growth will pick up somewhat further in FY14 — their estimates ranged from 2.8% to 3.6%.
The DOR noted the uncertainty surrounding the forecasts, stating in the introduction to the the FY13 briefing book:
With the national economy recovering slowly since the end of the recent great recession, Massachusetts economy and the state tax revenues have improved. But the uncertainty on economic growth and tax revenue growth has increased recently, mostly due to the uncertainty on U.S. fiscal policy and the Eurozone’s sovereign debt/banking crisis. In this environment, tax revenue forecasting is still very difficult, and there is still great deal of uncertainty surrounding revenue forecast estimates.
Since the consensus revenue estimates were agreed on in December, current tax revenues have run a little bit below the FY12 projection. DOR breaks down the benchmark projection for FY12 of $21.010 billion to monthly estimates. Through March, revenues were running $0.087 billion ($87 million) below the level believed necessary to achieve the $21.010 benchmark.
Bottom line: The consensus revenue estimate underlying the FY13 budget appears to be slightly optimistic and is more uncertain than in some years. That said, the Commonwealth’s stabilization fund (at $1.562 billion) is in relatively good shape. The probability of revenue losses so great as to result in mid-year 9C cuts in FY13 appears quite low.