How do we know how much money we can spend in next year’s budget? What do recent economic trends, domestically and globally, mean for Massachusetts tax revenues? What will be the impact of a Trump-Vance Administration on federal funding to Massachusetts?
A Consensus Revenue Hearing kicks off annual budget preparations and revenue forecasting each December.
The Joint Committee on Ways and Means and the Healey-Driscoll Administration met for the Fiscal Year 226 (FY26) Consensus Revenue Hearing on December 2. Like every year, we heard from the state’s Treasurer and Department of Revenue Commissioner, as well as an array of budget analysts and economists.
It’s a budget wonk’s dream and I always feel fortunate to attend and participate as I did this year — in part by asking questions about the impact of potential federal spending cuts and how we should prepare.
Here’s a short summary of what we learned about FY26:
Projections according to the Department of Revenue indicate that the state will collect approximately $41 billion from tax revenue. Whereas state tax revenues have been growing by four to six percent annually over the last few years, this year’s tax revenue increase is expected to be between two to three percent.
In these last years there were also federal COVID-relief funds available to supplement state tax revenues, but this year there are no longer COVID-relief funds available.
The state’s surtax (otherwise known as Fair Share Amendment) is expected to raise between $2.2 and $2.6 billion dollars. (As a reminder, these funds can only be spent on education and transportation.)
We’re on track to reach $9.1 billion in the state’s rainy day fund with funds set aside for the rollout of the Student Opportunity Act and the state’s pension fund.
Everyone who spoke before at the hearing discussed the unknowns related to the incoming Trump Administration in Washington, D.C.
Headwinds to track include:
- The slowing pace of revenue growth in the Commonwealth. The state budget has been growing by five to six percent annually, bolstered by strong revenue growth and federal COVID-relief funds. We cannot sustain this rate of budget growth if tax revenue growth slows.
- The impact of immigration-related crackdowns on the workforce (especially healthcare, agriculture, hospitality) and on sectors like higher education which benefits from international students.
- The impact of possible federal spending cuts related to programs like Medicaid, Pell Grants, or funding for climate change, scientific research, and more.
- The impact of proposed federal trade tariffs on the cost of goods and services in the Commonwealth.
You can watch the full Consensus Revenue Hearing here.
