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‘No margin for error’: State economic check-in spotlights tricky balancing act
Chris Lisinski, CommonWealth Beacon
September 30, 2025
DIFFICULT DECISIONS ABOUND as Massachusetts barrels toward a roughly $650 million decline in tax revenues and a host of other federal funding impacts nine months into Trump 2.0.
State budget-writers have been wringing their hands for months about the anticipated impact of the sweeping federal law enacted on July 4, and on Tuesday, they took the unusual step of hosting a mid-year checkup.
The prognosis they heard — that a slowdown is likely but Massachusetts might avoid a full recession — could force action in the next few months to rein in spending on local projects, recalibrate revenue forecasts, or adjust the state’s tax code.
“There’s really no margin for error,” Administration and Finance Secretary Matthew Gorzkowicz said at the State House hearing he held alongside the Legislature’s two Ways and Means Committee chairs.
Revenue Commissioner Geoffrey Snyder told officials his office expects the new federal law will shrink state tax collections this fiscal year by more than $650 million.
The fiscal year 2026 state budget Gov. Maura Healey signed in July does not account for that estimated hit, which Snyder newly revealed during Tuesday’s hearing, and officials will need to adjust their approach several months into the cycle.
“Obviously, $650 million at any point in time is significant and daunting, to say the least, for us as budget-writers,” said House Ways and Means Committee chair Aaron Michlewitz.
That’s not the only upheaval on the way. The sweeping federal bill could also shrink federal funding for health care here by $532 million in federal fiscal year 2026, according to an analysis from the Massachusetts Taxpayers Foundation. If Congress decides not to extend pandemic-era tax credits that help Americans pay for health insurance, the Massachusetts Health Connector marketplace would need an extra $255 million from Beacon Hill to keep its most subsidized option available at current rates.
Massachusetts Taxpayers Foundation president Doug Howgate said the billions of dollars in reduced federal health care spending on Massachusetts is a “challenge that’s going to cascade through the rest of the budget.”
“These are ticking time bombs, and we know when they’re going to go off,” he said.
Several of the experts invited to appear before policymakers offered a similar big-picture forecast: that the state’s economy will endure a sluggish period in the months ahead without fully tumbling into recession territory.
“My sense, based on what we know today, is that we’re not going to be moving in the coming year into a recession, but that a slower-growth, higher-cost environment is going to be there,” said Michael Goodman, a UMass Dartmouth professor and co-editor of the state-focused economic journal MassBenchmarks.
The Legislature has been happy in recent years to ramp up state spending, in part using newly available money from the surtax on high earners, with buy-in both from Healey and from former Republican governor Charlie Baker. Over the past decade, the bottom line of the annual state budget has grown by more than 58 percent.
Now, federal pressures — including the prospect of an extended government shutdown — are colliding with the more routine ebbs and flows in state economic performance to darken the outlook. Job growth has been mostly flat for more than a year, and tax collections are middling apart from the surtax.
A key indicator will come when the Department of Revenue publishes a report next week detailing how much the state collected in taxes in September. As of September 25, Snyder said, collections were “showing little to no growth versus last year.”
Beacon Hill has already built in a few bulwarks. Legislative negotiators left a more than $800 million cushion in their annual budget agreement to offset expected spending pressures or revenue drops.
That could help absorb the sizable decline in tax collections, but officials suggested it might not be straightforward. Michlewitz said there are “more issues at hand than just what this potential revenue piece may be,” and his Senate counterpart, Michael Rodrigues, warned of “tremendous growth” in health care needs.
“We understand that there’s $860 million on the balance sheet,” said Gorzkowicz, referring to the funding cushion lawmakers built into the 2026 budget. “How it’s used has yet to be decided, and there are many competing interests that have to be considered when thinking about how to apply that $860 million.”
Snyder told lawmakers most of the state revenue loss would come from a handful of changes to the federal tax code. Top Democrats did not rule out legislative changes that would decouple the state tax code, essentially putting in place a Massachusetts-specific approach to some tax measures that diverge from the national standard, as a way of minimizing the impact.
“We’re going to have to take all those options and consider them all at this point in time,” Michlewitz said.
Healey’s office said in July that the administration would delay paying about $125 million in local earmarks that lawmakers wove into the state budget until the fall. Gorzkowicz said he still has not decided whether to release that money, and will weigh input from Tuesday’s hearing and the forthcoming September revenue report.
The secretary has another choice to make in the next two weeks: by October 15, Gorzkowicz must certify that the state’s revenues are sufficient to cover its expenses for the fiscal year that runs through June 30, 2026. That might prompt the administration to downgrade Beacon Hill’s official tax collection forecast, which was developed before enactment of the federal megalaw.
“That’s what today’s hearing was all about,” Gorzkowicz said when a reporter asked about the prospect of adjusting the so-called consensus revenue benchmark.
Massachusetts has a sizable reserve on hand. The balance of the state’s “rainy day” savings account stood at about $8.6 billion in early September, according to the state comptroller’s office, more than six times as much as a decade ago.
But policymakers, still smarting from a 2017 bond rating downgrade that chided the state’s approach to savings, are hesitant to pull from that source.
“I would be hard-pressed at this time to suggest that we’re going to dip into the stabilization fund,” Rodrigues said. “We have other tools that are available to us, so I think we’d look at the other tools first.”
Another idea Healey proposed would give her temporary expanded authority to slash state spending unilaterally, often known as 9C cuts, from more areas of the budget.
Legislative leaders have shown little interest in ceding that power in the nearly three months since Healey included it in legislation. Michlewitz and Rodrigues on Tuesday said only that they continue to review the idea.
This article first appeared on CommonWealth Beacon and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.
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