Massachusetts Sees Big Revenue Lift As Patrick Offers Pension Reforms

Massachusetts estimates that it will collect $20.51 billion of tax revenue in fiscal 2012, about $740 million more than the projected revenue for fiscal 2011, as Gov. Deval Patrick Tuesday announced pension-reform initiatives.

Fiscal 2012 begins July 1. Even with the anticipated growth in revenue, Massachusetts will need to cut spending next year to account for $1.5 billion of federal stimulus dollars that will not be forthcoming and cost increases for Medicaid and other programs.

“We will have to make tough decisions to balance our budget in fiscal 2012 and be smarter about the way state government does business and delivers services,” Administration and Finance Secretary Jay Gonzalez said in a statement.

The Massachusetts Taxpayers Foundation, an independent fiscal think tank, estimates that even with increased revenue collections the state faces a $2 billion deficit in fiscal 2012. The group projects fiscal 2012 revenue will total $20.56 billion.

Off-budget transfers total $2.93 billion, leaving $17.58 billion for fiscal 2012 general appropriations. Of the $2.93 billion, $1.47 billion will go toward Massachusetts’ pension fund — a $36 million increase over the fiscal 2011 allocation. The remaining off-budget funds will help support the Massachusetts Bay Transportation Authority and the Massachusetts School Building Authority.

The state also plans to fully fund its outstanding pension liability by 2040, rather than the current funding timeline of 2025. The change is due to significant pension investment losses, according to Administration and Finance. A 2025 deadline would require the state to allocate an additional $1 billion to the pension fund.

Patrick’s latest pension-reform initiative follows retirement benefit changes enacted last year. The Democratic governor is seeking to raise the retirement age for most state workers, end early-retirement subsidies, and reduce some employee contribution rates while increasing others, among other changes.

The administration estimates that the previous pension reforms and Tuesday’s announcement will generate $5 billion of savings for the state during the next 30 years.

“The changes Gov. Patrick is proposing today will ensure the public employee pension system is fair, credible and fiscally sustainable,” Gonzalez said. “Doing nothing is not an option. If we don’t take action now, there will not be a pension system for retirees in the future.”

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