- Associated Press - Monday, December 5, 2016

BOSTON (AP) - Uncertainty over the direction of the incoming Donald Trump administration was one of the factors cited by experts Monday in urging renewed fiscal discipline by Massachusetts budget writers.

The hearing before the House and Senate Ways and Committees marked an unofficial kickoff to the monthslong process of assembling a state budget for the next fiscal year. The current spending plan totals nearly $40 billion.

The Massachusetts Taxpayers Foundation “advises extreme caution over the next 18 months and urges lawmakers to exercise great restraint in building the budget,” said Eileen McAnneny, the nonpartisan fiscal watchdog’s president.

Factors including “the lack of clarity on many policy positions from President-elect Trump and ominous signs of a global economic slowdown … necessitate a conservative approach,” she said.

The group predicted “sluggish” tax revenue growth of 2.6 percent in the fiscal year that begins July 1, 2017, similar to revenue projections that have twice been revised downward in the current fiscal year - forcing Republican Gov. Charlie Baker to weigh potential spending cuts and reductions in the state workforce.

Baker said after a private meeting Monday with Democratic legislative leaders that he would try to dissuade lawmakers from seeking new taxes to balance the budget. House Speaker Robert DeLeo said a tax increase had not been ruled out but would only be proposed as a last resort.

The precarious fiscal outlook appears to be in sharp contrast with the overall state economy, which has outperformed the U.S. over much of the last two years. The state’s November unemployment rate of 3.3 percent was the lowest since April 2001.

Michael Heffernan, the state’s revenue commissioner, cautioned lawmakers that the recent surge in financial markets and uptick in consumer confidence can’t be trusted to continue unchecked.

“If the U.S. economy slows considerably, then the Massachusetts economy will slow as well,” Heffernan said. “The level of uncertainty in both the economic and political spheres remains high.”

Britain’s vote to leave the European Union, an economic slowdown in China and the likelihood of the Federal Reserve hiking interest rates were among other factors that could weigh on the state’s short-term fiscal outlook, experts said.

Still, Heffernan offered a slightly more optimistic view of the next fiscal year, projecting tax revenues to rise by about $900 million or 3.5 percent over this year’s revised benchmark. He also predicted that revenue growth would be sufficient to trigger a small, automatic cut in the state’s income tax from 5.1 percent to 5.05 percent on Jan. 1, 2018.

Massachusetts Treasurer Deb Goldberg, a Democrat, warned of a potential downgrade in the state’s credit rating unless budget-writers move to replenish the state’s cash reserves, better known as the “rainy day fund,” which was depleted during the Great Recession.

The Baker administration and lawmakers planned to use Monday’s testimony to help reach a consensus on projected tax collections for the coming year, an estimate that will form the basis for how much the state can spend on programs ranging from education to transportation to health care.

Copyright © 2018 The Washington Times, LLC.

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