May 28, 2020
PUBLIC FINANCE > Budget > FY 2021

Massachusetts Fiscal Challenges Could Last Years

Policy Makers Face Tough Choices in New Reality

MTF recently downgraded its FY 2021 tax revenue forecast to a loss of $6 billion, representing a nearly 20 percent decline from the $31.15 billion consensus benchmark. At 20 percent, the revised forecast places Massachusetts towards the higher end of preliminary estimates of revenue losses among the states for FY 2021, although many of those state projections are
several weeks old.

As a guide for determining how long before Massachusetts tax revenues are restored to pre-pandemic levels, we examined past recessions. Following the recessions of 2002 and 2009, it took three years for state tax revenues to recover to pre-recession levels, putting enormous strains on the Commonwealth’s operating budgets during that period. Given the steep and widespread decline in FY 2021 tax revenues, it is reasonable to assume that it will take at least as long to recover as the two previous recessions. When the potential structural changes to key pillars of the economy are considered, it could take considerably longer for the state to recoup tax revenues lost from this pandemic.