Massachusetts’ financial system is anticipated to develop at a sluggish tempo over the subsequent yr, with excessive prices of dwelling persisting, a struggling labor market dogging employers and job-seekers, and federal insurance policies associated to commerce, analysis, and immigration persevering with to vex Beacon Hill, specialists mentioned this previous week.
The Bay State’s financial image is in flux partially due to choices by President Donald Trump’s administration to slash a whole lot of tens of millions in federal funding, rollercoaster state tax revenues over the previous a number of years, and a decline in inhabitants progress.
Michael Goodman, a professor of public coverage on the College of Massachusetts Dartmouth, mentioned he doesn’t count on Massachusetts to maneuver right into a recession over the approaching yr, however a “slow growth, higher cost environment” will stay.
“What we’re seeing is sort of a gradual slowing of growth that I think is concerning, but doesn’t appear at this time to look like an imminent recession,” he informed state finances writers at a roundtable Tuesday. “Even though we’ve seen an uptick in unemployment in recent quarters … it does appear to be due to a much slower pace of hiring and job posting rather than layoffs.”
Tax collections in fiscal yr 2025, which ended June 30, got here in about $2.1 billion, or 5%, above projections, in accordance with the Division of Income. The year-over-year enhance was largely pushed by a brand new 4% surtax on excessive earners and income from capital positive factors taxes.
However Administration and Finance Secretary Matthew Gorzkowicz mentioned though lawmakers have been in a position to stability fiscal yr 2025 spending with out taking “any extraordinary measures,” Beacon Hill ended up solely about $52 million, or 1%, above projections.
He mentioned gross sales and company taxes — two main classes that sign financial well being in Massachusetts — have been beneath benchmark in fiscal yr 2025 and the challenges for fiscal yr 2026, which ends subsequent summer season, “are no easier.”
“We know that in addition to uncertain economic future, we continue to confront significant spending pressures on core services, including healthcare, and federal policy decisions that could impact both revenue and federal funding that we rely on to deliver services to the people of Massachusetts,” Gorzkowicz mentioned on the roundtable.
Massachusetts pulled in practically $4.6 billion in tax revenues in September — a essential month for collections as a result of finances writers should certify by Oct. 15 that they count on sufficient money will likely be available to pay the state’s invoice this fiscal yr, in accordance with the Division of Income. The haul for final month was about 1.4% lower than anticipated however 3% greater than the state took on this time final yr.
The state’s unemployment fee was 4.8% via August, marking the fourth straight month that the indicator remained unchanged, in accordance with the Govt Workplace of Labor and Workforce Improvement. Employment was steady, however job progress had slowed, in accordance with the workplace.
Mike Lynch, an affiliate director for U.S. financial service at S&P International Market Intelligence, mentioned labor market challenges will stay within the native skilled, scientific, and know-how companies industries.
These points will likely be coupled with a “sharp deceleration” in inhabitants and labor power progress that can constrict the accessible expertise pool for employers, he mentioned. The housing market is anticipated to carry regular over the subsequent month with constructing exercise edging up barely and costs “avoiding a correction,” he mentioned.
On the coverage facet, Lynch mentioned, there are “notable near-term risks to the Massachusetts economic outlook stemming from external factors,” together with federal coverage actions on immigration.
He pointed to a “disruption of the flow of highly skilled international candidates depended on by research universities and private sector firms within the Massachusetts innovation economy.”
“Also, aggressive enforcement activities may both deter and reduce participation in the labor market over time,” Lynch informed Gorzkowicz, Senate finances chief Michael Rodrigues, and Home finances chief Aaron Michlewitz.
Trump’s actions within the White Home have additionally taken a toll on Massachusetts past immigration.
The state may lose out on $650 million in tax income due to the tax breaks and spending cuts Trump and Congressional Republicans included within the “One Big Beautiful Bill” signed into regulation over the summer season. The huge finances shocker may depart native finances writers scrambling to plug holes.
Healey has warned for months that Massachusetts may face monetary hardship due to federal actions, and she or he has taken a number of drastic steps that she argues will reduce a number of the impacts.
That features delaying funds for native legislative earmarks, or money put aside within the state finances for pet tasks in lawmakers’ hometowns; in search of the extraordinary authority to chop spending throughout all of state authorities as an alternative of simply the chief department; and pausing wage will increase for some staff beneath her purview.
Massachusetts Taxpayers Basis President Doug Howgate mentioned finances writers ought to take into account “moderate mid-year budget adjustments” like decreasing spending by utilizing emergency budget-cutting powers already accessible to Healey.
“I think all three of you folks are going to be dealing with a challenged fiscal year ’27, and we know we have some structural budget issues in (fiscal year) ‘26 related to things like MassHealth,” he mentioned to Gorzkowicz, Rodrigues, and Michlewitz. “Every dollar we save this year does help us a little bit for (fiscal year) ‘27. I’m under no illusions about how easy that is or how challenging that is from a political and a policy standpoint, but I do think it is worthy of consideration.”
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