While Massachusetts is still early in its budget process, revenue projections appear to provide the commonwealth some flexibility.
To S&P Global Ratings, the credit picture for the Bay State is stable.
Massachusetts’ mid-fiscal 2021 tax revenues are ahead of the same period in 2020, and well ahead of the 2021 budget, with growth projected to continue into fiscal 2022, the rating agency said. And the specter of increased federal aid should provide some cushion should tax revenues decline as projected in fiscal 2021.
“While budget challenges remain, contributing to a likely second consecutive year of decline in the commonwealth's budget stabilization fund, revenues are projected to come in much stronger than projected shortly after the pandemic began,” S&P analyst David Hitchcock said.
“Extraordinary federal revenues during the pandemic have assisted Massachusetts' finances, especially higher cost reimbursement for Medicaid,” Hitchcock added. “We consider the commonwealth to have relatively large healthcare costs, so the extra reimbursement has been very timely.”
The federal government has increased its reimbursement of Medicaid costs by 6.2 percentage points through at least the end of fiscal 2021. The state estimates this will mean an extra $880 million.
Gov. Charlie Baker, a Republican working with a heavily Democratic legislature, has proposed a $45.6 billion spending plan to lawmakers for the fiscal year that starts July 1. While the plan calls for withdrawals from the stabilization, or rainy day fund — often a red flag with rating agencies — Hitchcock called the drawdown moderate.
The executive budget projects an estimated $1 billion rainy day withdrawal in fiscal 2021, after which that fund would hold $2.5 billion at fiscal end June 30, or 5.3% of estimated budgetary operating funds expenditures. Baker has proposed a further $1.4 billion withdrawal in fiscal 2022. According to S&P, that would leave a balance equal to an “adequate” 2.4% of proposed 2022 expenditures.
The amount of the withdrawal could hinge on aid Massachusetts receives in the next federal rescue bill, Baker has said.
S&P rates the commonwealth’s general obligation bonds AA. Fitch Ratings and Moody’s Investors Service rate them AA-plus and Aa1, respectively.
Due partly to lower Medicaid caseloads, and anticipating the pandemic will recede, the budget proposal anticipates overall spending will decline in fiscal 2022.
Under the state's budget process, the Senate and House of Representatives enact separate spending plans before a concurrent panel of three members from each branch works out a compromise. The governor also makes adjustments.
