BOSTON — State tax revenues should grow at a modest clip next year, but underlying economic conditions remain uncertain and most of the new revenue will be offset by rising costs in programs beyond the control of budget writers, experts told a Statehouse hearing on Wednesday.
The predictions will be used by lawmakers and administration officials to arrive at an agreed-upon revenue estimate that will form the basis of the next state budget.
Michael Widmer, president of the independent Massachusetts Taxpayers Foundation, said the group's forecast called for tax revenues to grow by 4.7 percent in the fiscal year that begins July 1. But he cautioned that the less than robust economic recovery means the next budget will be another challenging one.
"Increases in largely non-discretionary spending for pensions, debt service, Medicaid and other areas, along with expanded commitments to transportation, will consume most of the $1.1 billion in new tax revenues," Widmer said.
Amy Pitter, commissioner of the state Department of Revenue, told the hearing that her agency was projecting revenue growth between 4.3 percent and 5.2 percent over what the state expects to take in during the current fiscal year.
The budget process will begin in earnest next month when Gov. Deval Patrick submits his final proposed spending plan as governor to the Legislature. The Legislature approved only a fraction of the nearly $2 billion in new taxes for transportation and education that Patrick asked for in his last budget.
It's unknown if Patrick, who is not seeking re-election in 2014, will request another tax increase.
Officials acknowledged that revenue forecasts were anything but an exact science. Tax collections in the current year are expected to exceed the consensus revenue estimate by as much as $383 million, while in the previous year they fell short by more than $250 million.
State Sen. Stephen Brewer, D-Barre, chair of the Senate Ways and Means Committee, said while Massachusetts weathered the economic downturn better than the nation as a whole, it no longer appears to be leading the recovery.
"Over the last year, many other states have caught up with us in the area of unemployment and moved ahead of us in the area of revenue growth," Brewer said at the outset of the hearing.
The state's rising unemployment rate was attributable to more people feeling confident enough about the economy to re-enter the labor force, Pitter said, adding that personal income was expected to rise up to 7 percent next year.
State Treasurer Steven Grossman, a Democratic candidate for governor, said Massachusetts remains on sound financial footing with a lofty bond rating and more than $1.5 billion in reserves. But he added that many families continue to face economic hardship.
"If Charles Dickens came back and wrote a book about this commonwealth at this moment in our history, it would be a tale of two commonwealths," Grossman said. "It would be a tale of rampant income and economic disparity."