Healey’s budget czar not ruling out midyear budget cuts if economy sputters

Despite economic and policy concerns, the estimate for state tax collections this budget year will not be marked down for now, Healey administration Budget Czar Matthew Gorzkowicz determined by Wednesday’s deadline, but he said he is ready to recommend midyear budget cuts if economic conditions erode in the coming months.

The decision to stick with the $43.61 billion tax revenue estimate means the state won’t enact immediate midyear budget cuts, as some feared could be possible.

And it shows the Healey administration is not yet ready to reduce official tax collection expectations despite its vocal worry about federal policy and funding shifts. It could also lead to more difficult decisions about spending levels deeper into the budget year.

At least one decision already has been made.

The Boston Globe reported Wednesday that Gorzkowicz, who helms the Executive Office of Administration and Finance, will “indefinitely” delay the release of tens of millions of dollars in earmarks for lawmakers’ local projects.

The announcement came as the majority-Democrat state House approved a $2.25 billion year-end budget that props up Medicaid spending and funnels $10 million to support 2026 World Cup matches in Foxborough that are now under attack by the Trump administration.

“In the face of unrelenting attacks from the Trump Administration that will strip health insurance coverage from millions of Americans and deny access to lifesaving vaccinations, this supplemental budget will help vulnerable residents prepare for, and avoid, a lapse in coverage, and ensure continued access to vaccines for every child in Massachusetts,” state House Speaker Ronald J. Mariano, D-3rd Norfolk, said in a statement.

The administration’s top budget officer said Wednesday that his fiscal calls were based on testimony from Sept. 30’s midyear economic roundtable.

The Department of Revenue said at that meeting that it is expecting at least a $650 million state tax revenue decrease this year as a result of federal tax code changes.

But Gorzkowicz said his takeaway was “that forecasts anticipate a slowing economy rather than a recession,” roughly in line with the December 2024 forecasts that underpinned the start of the fiscal year 2026 process.

“Our original consensus revenue estimate, which reflects 2.2% baseline growth, was developed with the expectation of a slow-growth economic environment. Collections through the end of September were 3.1% higher than the same point last year, despite falling 0.6% below the current-year benchmark,” the secretary said in a letter to the governor and the chairs of key legislative committees.

“With the majority of the fiscal year still ahead, we will continue to closely monitor revenue performance and economic indicators throughout the fiscal year to determine whether any adjustments may be warranted in the future,” he continued.

The Healey administration and legislative Democrats agreed in January to build the fiscal year 2026 budget on a $43.614 billion consensus revenue estimate.

They stuck with that number through the five-month budget process, which coincided with the advancement of the One Big Beautiful Bill Act through Congress, and the administration is sticking with it now in the face of the projected $650 million drop in the tax revenue forecast.

Tax collections are crucial to the state budget. So too are federal revenues and reimbursements, which state budget managers say they can no longer rely on in the same way.

The fiscal 2026 budget was approved as a $60.9 billion outlay but will inevitably grow through supplemental spending bills. Last year’s budget started out as a $57.8 billion package but fiscal 2025 spending will hit $61 billion — surpassing fiscal 2026’s starting point — with the Senate’s expected passage of a closeout budget bill next week.

“We’ve been navigating a challenging and unpredictable fiscal environment. While we were able to balance fiscal year ’25 without taking any extraordinary measures, we were only about $52 million above benchmark, or 0.1%, and that’s when you back out the surtax … So there’s really no margin for error,” Gorzkowicz said late last month.

He continued, “The challenges we face in FY ’26 are no easier. We know that in addition to uncertain economic future, we continue to confront significant spending pressures on core services, including health care, and federal policy decisions that could impact both revenue and federal funding that we rely on to deliver services to the people of Massachusetts.”

In his letter, Gorzkowicz said he will continue to track both revenue and expenditure trends and is prepared to recommend so-called 9C cuts “or other appropriate measures to maintain budget balance” if conditions warrant.

This summer, Gov. Maura Healey asked lawmakers to give her expanded 9C powers to allow her to cut from a greater range of state accounts. Legislative leaders have been cool to the idea and municipal officials are staunchly opposed.

At the roundtable two weeks ago, Revenue Commissioner Geoffrey Snyder told state leaders that federal tax code changes could reduce fiscal 2026 state tax collections by $650 million and budget managers acknowledged “tremendous growth on the spending side,” especially around MassHealth and health care generally. The amount that DOR says is at risk represents about 1.5% of the tax revenue the state is expecting to collect this year.

Lawmakers and the Healey administration penciled a roughly $800 million buffer into the fiscal 2026 budget, leaving anticipated revenue (to the tune of $860 million, Gorzkowicz has said) unspoken for on the balance sheet to cushion any tightness in the budget.

But the money that forms that buffer has yet to be collected, and the Legislature has a history of underfunding accounts and then needing to approve additional appropriations.

“We still have to go through the fiscal year to have an understanding of what the final number will be,” House Ways and Means Committee Chairman Aaron Michlewitz, D-3rd Suffolk, said late last month.

The state collected $10.082 billion during the first quarter of fiscal 2026, which was $309 million or 3.2% more than actual collections during the same period of fiscal 2025.

But the growth wasn’t enough to meet what’s expected to support the budget — DOR said collections this year are so far running $64 million or 0.6% behind the year-to-date benchmark.

State tax revenue collections totaled $43.708 billion in fiscal 2025, a $2.9 billion or 7.1% increase over fiscal 2024 collections and $2.1 billion or 5.1% ahead of benchmark, the Mass. Taxpayers Foundation reported.

But non-withheld income taxes — the category that includes capital gains and income surtax revenues — “had an outsize impact on revenue trends in FY 2025, with collections in that category exceeding benchmark by 37.7 percent – accounting for nearly all above benchmark performance.”

Working against the strong growth in non-withholding was underperformance in sales and corporate tax collections, which landed 2.2% and 7.1% below benchmark, respectively. Withheld income taxes, which MTF said have historically been the largest and most stable slice of state revenues, totaled $19 billion — up $1 billion or 6.1% over the previous year and $329 million or 1.8% above benchmark.

The law that required Gorzkowicz to certify fiscal 2026 revenue expectations by Wednesday calls on him to “prepare estimates of budgeted revenues which in the secretary’s judgment will be available for both the current year and for the annual budget for the ensuing fiscal year.” But the secretary did not provide a fiscal 2027 revenue estimate saying that his omission “is customary.”

“Our ability to develop an accurate forecast for Fiscal Year 2027 revenues will be strengthened by additional months of tax collection data and testimony informed by updated economic projections at the consensus revenue hearing this winter,” the secretary wrote.