The state’s sizeable rainy day fund will be infused with hundreds of millions of dollars once the books are closed on fiscal year 2023, but the deposit is expected to be “substantially less” than the $1.5 billion initially expected.
The smaller-than-expected deposit is “driven by lower than originally anticipated capital gains tax collections,” officials wrote in the June 20 official statement of Bay State finances that also put investors and others on notice of the change. The shortfall in capital gains revenue contributed to the nosedive that state tax collections took in April, missing Healey administration expectations by $1.435 billion (or 23.1 percent) and falling $2.163 billion (or 31.2 percent) short of the mark from the same month a year earlier.
The consensus revenue estimate that the Healey administration updated in January forecast $2.934 billion in capital gains collections for fiscal year 2023 (which runs from July 1, 2023 through June 30, 2024), which would result in a $1.53 billion deposit to the Stabilization Fund based on the law that requires 90 percent of capital gains revenue above a certain threshold (just more than $1.403 billion in fiscal year 2023) be deposited into that account.
But in the first 11 months of fiscal year 2023 (through May 31), the state had brought in just $2.065 billion in capital gains collections, according to a letter obtained by State House News Service that the Massachusetts Department of Revenue sent state comptroller William McNamara last week. If the fiscal year were to have ended May 31, the rainy day fund deposit would have been $595.2 million, the state Executive Office of Administration and Finance said.
The final deposit, a number that may not be clear until the books are closed this fall, will be equal to $595.2 million plus 90 percent of whatever capital gains revenue the state collected during June 2023. Fiscal year 2023 ended June 30, but it regularly takes state lawmakers months to formally finish the accounting necessary for the state’s comptroller to compile an annual financial report.
The Stabilization Fund has a balance of $7.22 billion, the state Executive Office of Administration and Finance said — a historically high level of reserves for the state that is equal to nearly 14 percent of fiscal year 2023 budgeted spending. The fund’s balance is closer than it has been at any point over the last 20 years to the maximum allowed by law, and state budget managers have also socked away money — including fiscal year 2022’s year-end $4.8 billion surplus — in a Transitional Escrow Fund that former Secretary of Administration and Finance Michael Heffernan said “acts almost as a stabilization fund on top of the Stabilization Fund.”
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