Britain's decision to leave the European Union – Brexit – has clobbered American stock prices, costing the Dow Jones Industrial Average 597 points over the last two trading days. That translates into bad news for the Massachusetts state budget, which will now garner less money than expected from capital gains taxes.
Charlie Baker's administration announced that state tax revenue, the fuel that fires the nearly $40 billion budget, could be lower than expected next fiscal year, to the tune of almost $1 billion dollars.
The lowered revenue expectations couldn't come at a more awkward time for Beacon Hill leaders. House Speaker Robert DeLeo and Senate President Stan Rosenberg's top aides are rushing to finish two years' worth of lawmaking before the Legislature breaks for the year in August, while simultaneously rewriting the budget plan the chambers need to negotiate in order to keep Massachusetts's government in business.
"For the most part, we've done everything we can to protect what I would describe as core services and I think we've done a pretty good job with that," Baker told reporters after meeting with top lawmakers Monday.
Baker was also optimistic about the long-term process of weaning the state away from its over dependence on investment taxes.
"I'm really glad that over the course of the past eighteen months to two years we've worked with the House and Senate to reduce our reliance on capital gains tax revenue to fund our ongoing expenses because that number moves a lot and when it moves a lot it has real consequences," Baker said.
The downturn in the markets played a role in another Baker administration subplot Monday, when MBTA chief Brian Shortsleeve warned of dire results for the viability of the T's pension fund unless changes are made to scrape through on a downgraded expectation of market growth.
Baker was cheery Monday afternoon, pointing toward a 4.2 percent unemployment rate for the state and revenue growth expected to hold steady for the coming fiscal year at around 2.5 percent, according to the State House News Service.
Problem is, the state budget has grown roughly 3 percent in recent years and was expected to inch higher again this year. Lawmakers, along with the Baker administration, now need to deliver a trimmed down budget to kick off the fiscal year on July 1. On top of that, lawmakers, agencies, and anyone else that benefits from state funding should be on guard for further cuts throughout the year if markets and revenue continue to drop.