Revenue — Governor proposes one-time revenues, which will largely be offset by scheduled loss of recurring revenues

By Nancy Wagman and Kurt Wise, February 17, 2020
FY 2021 GOVERNOR’S BUDGET: Revenue — Governor proposes one-time revenues, which will largely be offset by scheduled loss of recurring revenues

Note: This is one of several reports that take a deeper look at an element of the Governor’s FY 2021 budget recommendations. Find these reports on the Budget Resources landing page or join MassBudget’s email list.

To track funding proposals for specific line items, visit MassBudget’s Budget Browser, which will be updated shortly after each budget proposal is posted.

Revenue is not where the principal action is happening in the Governor’s Fiscal Year (FY) 2021 budget. With that said, there are a number of moving revenue pieces worth mentioning. Overall, the Governor balances his budget with $498 million in notable additional tax and non-tax revenues. These dollars are above and beyond the amount agreed to with the Legislature in the Consensus Revenue Estimate ($31.151 billion). Much of this additional revenue is from one-time sources, meaning it will be available only in the coming fiscal year (FY 2021); it will not be available to help fund the budget in future years.

Another important aspect of the revenue picture in FY 2021 is that $420 million of recurring revenue (also called “ongoing revenue”) will be disappearing from the Commonwealth’s revenue stream due to recent and pending changes in law. The majority of this lost revenue will come from a progressive revenue source, making our already upside down tax system that much less fair. While these reductions in recurring revenues already are factored into the FY 2021 Consensus Revenue Estimate – and thus will not create an unexpected hole in the state budget - their loss nevertheless means the Commonwealth will be able to invest that much less each year in communities across the state than it otherwise could have.

(Throughout this brief, you will see words in bold. These terms are defined in a glossary at the end of the report.)


Overall, the Governor’s FY 2021 budget includes notable additional revenue from roughly half a dozen different sources, both tax and non-tax. Most of the additional revenue would come from tax initiatives proposed by the Governor, including a proposal to accelerate sales tax collections (included in his FY 2021 budget) and a proposal to tax manufacturers of opioids (included in separate legislation). Some of the additional revenue would come from proposed non-tax changes, such as the legalization of online sports betting and an assessment on ride-hailing services. In total, these various additions would boost FY 2021 collections by an estimated $498 million (see summary table, below). Only $176 million of this total would come from ongoing revenue streams (available in FY 2021 and future years), while the remainder ($322 million) is one-time revenue and thus would be available only in FY 2021.

($ millions)
   Life Sciences Tax Credit Cap 5.0 
   Sales Tax Acceleration 317.0 
   Tax-Related Settlements & Judgments 50.0 
   Tax on Opioid Gross Receipts 16.0 
   Sales Tax Integrity Measures 2.0 
   Casino-Based and Online Sports Wagering (separate legislation) 35.0 
   Transportation Network Companies (TNC) Assessment 73.0 

Offsetting a sizeable share of the estimated gain from these additional revenue sources will be anticipated revenue losses due to recent and pending changes in existing law (see “Notable Reductions” table below). These changes will remove $420 million in ongoing revenue (both tax and non-tax) from the Commonwealth’s collections in the coming fiscal year. As noted above, these revenue losses are factored already into the FY 2021 Consensus Revenue Estimate and thus will not create an unexpected hole in the FY 2021 budget, but they do represent a lost opportunity to invest further in the many programs and services that benefit individuals, families and communities throughout the Commonwealth.

($ millions)
   Personal Income Tax Rate Reduction from 5.05% to 5.00% (185.0) 
   Introduction of Mass. Charitable Giving Deduction (64.0) 
SUBTOTAL TAX  (249.0) 
   Planned reduction in federal reimbursement for CHIP (79.0) 
   Sunset Supplemental Employer Medical Assistance Contribution (92.0) 

Some details about the notable reductions follow:

  • The strong economy and robust revenue collections of the last several years have activated previously established “triggers” in our state tax code, automatically decreasing the personal income tax rate twice during that period. On Jan. 1, 2019, the rate dropped from 5.1 percent to 5.05 percent and on Jan. 1, 2020, the rate dropped again, to 5.00 percent.
    Each of these rate decreases will result in lower revenue collections in FY 2021 and the years ahead. Looking only at the impact of the final rate decrease, the Department of Revenue (DOR) estimates it will reduce FY 2021 collections by $185 million. (DOR estimates the Commonwealth will lose $88 million in FY 2020 due to this same rate drop, as it took effect part way through that fiscal year. For more on the cumulative impact of triggered rate cuts on the Commonwealth’s revenue stream, see MassBudget’s report here.) These lost tax dollars are recurring revenues that otherwise could pay, year after year, for teachers, caseworkers, health care providers, and other public services.
  • As part of the same, previously established set of tax triggers, the drop to a 5.00 percent income tax rate automatically activates the introduction of a new state tax deduction for charitable donations, one similar to the federal version. This state-level deduction is set to go into effect Jan. 1, 2021. DOR estimates this new tax break will cost the Commonwealth $64 million in lost revenue in FY 2021 as it comes online, and $300 million in FY 2022 and annually thereafter.
    Not only is this an expensive tax break, it is one that will heavily favor high-income filers: households that earn over $1 million claim almost half of the total federal charitable deductions claimed by all Massachusetts tax filers, while households earning less than $200,000 claim only 29 percent of the Massachusetts total. This lopsided distribution of benefits will be more or less mirrored in the new state deduction when it goes into effect.
  • Budget writers are expecting a $79 million reduction in federal reimbursements for the Children’s Health Insurance Program (CHIP), which is a part of MassHealth. (See discussion below.)
  • The Employer Medical Assistance Contribution supplement generated some $92.0 million in FY 2020, but with its expiration halfway through FY 2020, it will generate no revenue in FY 2021. (See discussion below.)

Notably, almost 60 percent of the total revenue loss from these four sources comes from one of the state’s most progressive revenue sources: the personal income tax. Massachusetts already has a regressive tax system, one that collects a greater share of household income from low- and moderate-income people than it does from those with high incomes. In short, our existing tax system is “upside down.” Reducing the amount the Commonwealth collects from progressive revenue sources means that a greater share of our state revenue will come from regressive sources. This is not a recipe for flipping Massachusetts’ upside-down tax system right side up.

Tax Revenue

While the Governor is not proposing any radical tax changes in his FY 2021 budget, there are a number of revenue-related elements that are worth noting:

  • As he did in his FY 2020 budget, the Governor again proposes a Sales Tax Modernization Initiative. These changes seek to shorten the period of time between when businesses collect the sales tax from their customers and when businesses must transfer (or “remit”) these collected taxes to the Commonwealth. Currently, vendors are allowed as many as 50 days to remit these taxes. The Governor recommends requiring larger vendors – those with over $100,000 in annual sales tax or room occupancy and meals tax collections - to remit, in the final week of each month, the taxes collected during the first three weeks of the month. These vendors then would remit taxes collected in the month’s final week during the first week of the next month.

    One effect of shortening the period during which larger vendors can remit the sales tax they have collected would be to shift – or “pull forward” – roughly three weeks’ worth of sales tax remittance from FY 2022 into FY 2021. This shift would result in a one-time revenue gain in FY 2021 of an estimated $317 million.

    Also part of the Sales Tax Modernization Initiative is a recommendation that, beginning in 2023, retailers and credit card processors be required to transfer electronically to the Commonwealth, on a daily basis, any sales tax they collect. This change would not have any effect on FY 2021 revenues.

The third and final element of the Governor’s sales tax related proposals is the creation of significant civil penalties for enabling or engaging in a certain type of sales tax evasion. Special types of software installed in cash registers and other point-of-sale devices can reduce recorded sales totals, thereby reducing the amount of sales tax remittance the Commonwealth expects to receive from a given vendor. Under the Governor’s proposal, the sale, installation, repair, maintenance or possession of such automated sales suppression software – or “zappers” - would result in a fine of “not more than $10,000 for the first offense, or $25,000 in the case of a seller, and not more than $25,000 for each subsequent offense, or $50,000 in the case of a seller.” Titled the “Sales Tax Integrity Initiative,” the Administration estimates that increased compliance with sales tax remittance would result in a revenue gain of $2 million per year.

  • The Governor builds into his budget the expectation of $50 million in tax-related settlements and judgments. These are delayed or legally contested, tax-related payments that the Governor anticipates will be resolved in the Commonwealth’s favor in FY 2021.1 Though the Commonwealth typically receives over $100 million annually from this source, the amounts can vary significantly from year to year. As these revenues are not included in the Consensus Revenue Estimate, they constitute an increase in the Governor’s bottom line revenue total.
  • In separate legislation (i.e., not as part of his FY 2021 budget proposal), the Governor proposes applying a 15 percent gross receipts tax on opioid manufacturers for most opioids sales. This tax would generate an estimated $16 million in ongoing revenue in FY 2021 to help offset state costs associated with opioid misuse. The additional revenue would fund programs aimed at the prevention and treatment of addiction. The Governor includes these proposed additional revenues in his FY 2021 budget.
  • The Governor proposes a disabled worker tax credit of up to $2,000 per year for each disabled individual that a business hires and retains for at least 18 months. The goal is to encourage businesses to hire more disabled workers. The Administration estimates that the maximum annual cost of the program would be in the low few millions of dollars. As the credit would become available first in Tax Year 2022, there would be no revenue cost in FY 2021.
  • The Governor proposes that DOR evaluate the impact of the new tax deduction for charitable giving as well as for alternative structures for this deduction. (See discussion of this new tax break, above.) Some of the alternatives the Governor suggests DOR evaluate include “reducing the percentage of the charitable deduction and capping the deduction per taxpayer,” though the Governor’s language makes clear that DOR can and should evaluate other options as well. The budget language does not appear to offer a date certain by which DOR would deliver the results of their analyses.
  • As in past years, the Governor again proposes limiting the amount of funding to be transferred from the state’s consolidated net surplus to the Massachusetts Life Sciences Fund. This limit on the funding available for distribution through the Massachusetts Life Sciences Credit program is expected to save $5 million in FY 2021. (This proposal is one that has been matched by the Legislature in past years and regularly adopted as part of the final budget.) The Massachusetts Life Sciences Fund supports the cost of a corporate tax credit program that is intended to incentivize companies involved in “life sciences research and development, commercialization and manufacturing” to create and retain full-time permanent jobs within the Commonwealth. Companies must apply for and be awarded these credits, but credits are available only to the extent that funds are available.

Non-Tax Revenue

The FY 2021 Governor’s budget proposal also assumes about $19.34 billion in non-tax revenues. These include federal funds (mostly as reimbursement for the state’s spending on MassHealth, the Medicaid health insurance programs), as well as a variety of fees and fines, and other revenues such as lottery receipts.

Non-tax revenues include amounts expected from the continued expansion of legalized gambling. By FY 2020, the second of the state’s resort casinos opened in Everett was fully operational. Even as the state considers licensing a third casino in the southeastern part of the state, the revenue estimates for the existing casinos have not lived up to expectations. For FY 2021, the Governor anticipates these gambling facilities will bring in about $282.7 million to support the budget, down from the estimate of $293.5 million a year ago.

The Governor’s budget also assumes that his still-pending proposal to legalize sports betting will pass in FY 2021. The budget assumes $35 million in revenue from that, although last fiscal year neither the House nor the Senate included sports betting in their budget proposals.

The legalization of marijuana has also brought new tax revenue into the state Treasury, but at this point there are no significant new non-tax revenues from this relatively young industry as the licensing of new facilities has steadied. The Cannabis Control Commission anticipates $14.1 million from licensing fees for FY 2021, about $680,000 less than in FY 2020, but still almost twice the amount from FY 2019.

The Governor’s budget proposes an increase in the assessment on ride-hailing services such as Uber or Lyft, also known as “Transportation Network Companies” (TNC). This new assessment would bring in an additional $78.4 million to help balance the budget. (For more on this assessment, see our brief on the Governor’s transportation budget proposal here.)

There are some notable losses in non-tax revenue reflected in the Governor’s budget, although both were anticipated. The most significant is the anticipated reduction in federal reimbursements for the Children’s Health Insurance Program (CHIP), which is a part of MassHealth. The Affordable Care Act had temporarily increased the reimbursement rate for CHIP-eligible services from 65 percent to 88 percent, but this enhanced reimbursement rate returns to 65 percent during FY 2021, reducing these federal revenues by about $79 million.

Another notable reduction in non-tax revenue comes with the December 31, 2019 expiration of the Employer Medical Assistance Contribution supplement. This was a temporary two-year assessment on employers whose non-disabled employees received subsidized health insurance (MassHealth or ConnectorCare). The purpose of this assessment was to help defray state MassHealth costs. This temporary assessment on employers was expected to generate $230 million a year for each of the two years it was in effect. As it is phased out, it is expected to bring in $92.0 million in FY 2020, but it will not continue in FY 2021.

Another budget-balancing strategy the Governor and Legislature have adopted for several years is the systematic under-funding of health and other non-pension post-employment benefits (“OPEB”) for state retirees. The Commonwealth funds the current and future costs of OPEB through a variety of transfers to the State Retiree Benefits Trust. In order to fully fund the cost of future retirees’ benefits, in FY 2012 the state decided to dedicate an increasing share of its annual Master Tobacco Settlement award to the State Retiree Benefits Trust. The intent was to use 90 percent of the award by FY 2021, which would be about $235.3 million.

However, instead of transferring $235.3 million, the Governor’s budget proposes transferring an amount equivalent to just 10 percent of the Tobacco Settlement award—$26.1 million—into the State Retiree Benefits Trust to fund OPEB. Language in the budget states that this transfer would come from unexpended debt payments reverted to the General Fund or, if those reversions are insufficient, the Governor proposes making the transfer from the Master Tobacco Settlement money deposited into the General Fund. This total is $209.2 million less than the amount indicated for FY 2021 in the statute.

Stabilization Fund

In his FY 2021 budget, the Governor proposes depositing $310.5 million into the state’s Stabilization Fund (often referred to as the “Rainy Day Fund”). This total includes excess capital gains revenue, gambling revenue, and interest earned on the principal in the fund. If the FY 2020 deposit also occurs as the Governor anticipates, this would bring the fund total to $4.3 billion at the close of FY 2021. Achieving this level of “rainy day” savings would mean that Massachusetts had taken a very important step toward preparing for the next recession. With very strong capital gains tax collections in FY 2018 and in FY 2019, the Stabilization Fund has grown significantly in the last two years. If deposits are made as expected, by the end of FY 2020, the fund will have grown almost four-fold since the close of FY 2015 (growing from $1.1 billion to $4.3 billion).


  • Capital Gains: The profit made by selling assets (stocks and bonds, houses, art, etc.) for more than the owner paid for the assets. In Massachusetts, most such profits are taxed at the same rate as other forms of personal income.
  • Children’s Health Insurance Program (CHIP): A federal program, which in Massachusetts is part of the MassHealth program, that reimburses the state for a portion of its spending on health insurance for low- and moderate-income children and pregnant women.
  • Employer Medical Assistance Contribution (EMAC) supplement: The EMAC is an assessment on employers whose employees are covered under either MassHealth or receiving subsidized commercial coverage through ConnectorCare. Starting in 2017 the Legislature added this temporary (two-year) supplemental assessment to the EMAC. This supplement expired on December 31, 2019.
  • OPEB (“Other Post-Employment Benefits”): Benefits provided to retirees, other than pension benefits. OPEB often refers to health insurance benefits provided to retirees.
  • Progressive Revenue Source: A source of revenue, tax or non-tax, which requires those with higher incomes to contribute a larger share of their household income than the share of household income contributed by those with low- and moderate incomes. It is the opposite of a regressive revenue source (see below).
  • Recurring Revenue: Revenue derived from a recurring source. These revenues can be replenished from this source in the future. Personal income taxes and sales taxes are examples of recurring revenues, as revenue from these sources is available on an ongoing basis. Revenue from the sale of a particular state property, however, is an example of non-recurring, one-time revenue: it is available only once, at the time of sale.
  • Regressive Revenue Source: A source of revenue, tax or non-tax, which requires those with low and moderate incomes to contribute a larger share of their household income than the share of household income contributed by those with high incomes. It is the opposite of a progressive revenue source (see above).
  • Stabilization Fund: Also called the “Rainy Day Fund”. A state fund into which a portion of current year revenues are placed in anticipation of the need to draw on these dollars in years when revenue collections fall short of expectations.
  • Tobacco Settlement: In November 1998, the 51 attorneys general, including the attorney general of Massachusetts, entered into a landmark settlement as a result of litigation against major cigarette manufacturers. This litigation was intended to cover some of the significant costs to the state due to smoking-related diseases. Among many other things, this Master Settlement Agreement requires the participating manufacturers to make annual payments to the settling states in perpetuity.

1 The FY 2015 budget amended the General Laws to allow much of the revenue derived annually from large tax-related and non-tax-related settlements and judgments to be used for budget appropriations rather than be deposited into the state’s Stabilization Fund, as had been done in years prior. Under the new law, each year, the annual average for these types of collections over the prior five years is calculated and set as a threshold. Collections below the threshold are available for budgetary appropriations, but once total collections exceed the threshold, all additional such revenues are deposited into the Stabilization Fund. Individual settlements that exceed $10 million are designated for deposit into the Stabilization Fund rather than the General Fund.