State tax revenue rebounds, but still behind projections

A month after state tax revenues cratered, Massachusetts officials said they collected hundreds of millions more in May than a year ago, topping their own projections for the month and narrowing a potential budget gap with weeks left in the fiscal year.

The $2.7 billion the state collected last month actually beat projections by about $169 million, state revenue officials said, and topped collections from May 2022 by roughly $230 million.

Even with the better-thanexpected month, Massachusetts is still lagging its year-todate tax revenue projections by at least $583 million, according to state data — a far cry from the multibillion-dollar surplus it enjoyed just a year ago.

But the May figures were a welcome sight on Beacon Hill after revenues plummeted in April, sparking questions about whether officials could still afford to pursue a wideranging tax relief package that has been wending through the Legislature for months.

With the new figures in hand, Senate President Karen E. Spilka said Monday that her chamber is “proceeding with a tax relief package” after the House passed its own in April, an indication the Senate’s version could emerge in the coming weeks. The chambers will have to reconcile any differences before sending a final bill to Governor Maura Healey, who has made retooling the state’s tax code an early focus of her agenda.

“Soon,” Spilka said of the timing of the Senate tax bill. “Stay tuned.”

State officials said collections in May were up across a variety of buckets, including sales and income taxes. Collections from a category of “other taxes” also beat projections, in part because of revenue from the state’s estate tax, a category that officials say tends to fluctuate.

It’s a rebound from April — typically the strongest month — when collections fell nearly $2.2 billion below what the state collected a year earlier, when it was in the midst of a record-breaking budget surplus. The state’s fiscal year ends June 30.

Lawmakers and budget officials have long braced for a slowdown, but the extent of the drop in April caught some by surprise. Collections were more than $1.6 billion short of what officials originally projected for the month, and the news landed at a critical time.

The House had recently passed both a $56.2 billion budget plan for next year, and a tax relief bill that, ultimately, could cost the state $1.1 billion a year. The Senate has since passed its budget proposal but has yet to offer its own ideas on tax relief.

A month ago, Healey’s administration argued the state could still afford to pursue a wide-ranging tax plan, saying the primary reason she filed it — “affordability and competitiveness” — were still relevant. Healey applauded May’s figures as she left a news conference at the State House on Monday.

“Those were good,” she said before ducking through a door into her office. “Above benchmark.”

The shifting revenue picture has raised the potential that state officials may have to plug a year-end hole in the $52 billion state budget. One option includes tapping a $1.7 billion escrow account it built using surplus money from a year ago; the state also has nearly $7.2 billion in the emergency savings account known as the Rainy Day Fund.

Should the state have to balance its budget with a year-end infusion, it could impact its ability to cover another potential, and unexpected, expense: reimbursing the federal government for money the state wrongly used to fund billions of dollars in jobless benefits.

The state is in discussions with the US Department of Labor after a routine audit found that Massachusetts used $2.5 billion in federal money — when it should have used state funds — to pay benefits dating back to 2020 during the Baker administration.

Healey has said she is hoping Massachusetts can avoid having to reimburse the federal government and “resolve it without any impact to the Commonwealth or to employers.” But it’s unclear whether the state will avoid such a fate.

State officials were reluctant Monday to say from where they could draw the repayment funds, if needed.

“We’re in the fact-finding stage right now,” Spilka said, “trying to figure out what happened and what we may owe or not owe.”