New tax provisions brings a $650M state budget hit with the shutdown adding to the woes

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Just three months into the new fiscal year, lawmakers learned about a new wrinkle caused by the One Big Beautiful Bill: federal tax law changes within the new law that could remove $650 million in state tax revenue supports that are holding up the $61 billion annual budget.

The sweeping federal legislation, signed the same day as the state budget, could siphon hundreds of millions from Beacon Hill’s coffers, a development disclosed at an economic roundtable. The news is forcing lawmakers to rethink core assumptions and scramble for possible fiscal workarounds. Add a full-blown federal government shutdown to the mix, and the state’s economic footing looks shakier by the day.

The shutdown became official on Wednesday. Federal offices closed. Economic data streams went dark. Gov. Maura Healey didn’t mince words: "It's terrible for our country."

She blasted Congressional Republicans for "driving us over a cliff."

Roughly 45,000 federal workers who live in Massachusetts could be facing furloughs, and state officials began preliminary planning last week to keep key programs afloat while federal dollars are paused.

The U.S. Department of Labor also confirmed that Friday’s national jobs report would be shelved, sidelining data that influences economic, government and business decisions.

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On Tuesday, Revenue Commissioner Geoffrey Snyder dropped the news about the $650 million exposure that occurs because the state is "coupled" with many federal tax provisions, creating ripple effects.

"This is one of the more challenging times that we’ve faced from a fiscal perspective," said House Ways and Means Chair Aaron Michlewitz, noting that while several options are on the table, few are ideal.

Budget leaders are now weighing, at a minimum, whether to dip into reserves, revise revenue forecasts mid-year (a decision due by Oct. 15), or decouple state tax law from specific parts of the federal code.

Administration and Finance Secretary Matt Gorzkowicz was blunt: "There’s a lot of uncertainty, and there’s a lot of things we have to consider in managing that."

Pressed on whether midyear budget cuts might be necessary, Gorzkowicz said simply: "I don't know."

The state does $860 million in unallocated funds built into the budget, perhaps with some foresight of what was coming but possibly also due to the common legislative tendency to pass supplemental budgets.

Sen. Michael Rodrigues, however, signaled restraint around the state's over-$8 billion reserve fund: "We have other tools available. I’d be hard-pressed to suggest dipping into the Stabilization Fund right now."

As well as in revenue reports, warning signs flashed this week in test scores.

The latest MCAS results, released Monday, show that academic achievement hasn’t returned to pre-pandemic levels. In some cases, it’s slipping further behind.

Only 42% of students in grades 3 through 8 met or exceeded English standards, and math scores were flat. Among 10th graders, who no longer need to pass the MCAS to graduate thanks to last year’s ballot vote, scores declined across the board.

"We also continue to see achievement gaps, specifically for students of color, our students with disabilities and English learners," said Education Commissioner Pedro Martinez. "These results are sobering, but they're not insurmountable."

Officials also pointed to a drop in student motivation as a factor, especially among high schoolers who know the test no longer carries graduation stakes. In some cases, students submitted blank answers or deliberately wrote off-topic responses, they said.

Secretary of Education Patrick Tutwiler called the learning loss recovery effort "a process, not an event."

While slow or stalled learning progress could become a political liability for those in office, challengers are circling.

On Wednesday, Michael Minogue, a Republican businessman and Army veteran, officially entered the 2026 governor’s race. In a launch video, the former Abiomed CEO cast himself as a mission-driven outsider ready to challenge a complacent Beacon Hill.

"Our current one-party system isn’t working," Minogue said. "What we need is a new kind of public servant."

Minogue’s entry bulks up a GOP field that already includes former housing and economic development chief Mike Kennealy and ex-MBTA overseer Brian Shortsleeve — both of whom trailed Healey in a recent poll but led among independents, the crucial bloc in statewide contests.

The Fiscal Alliance Foundation poll released this week showed discontent with the status quo. While Healey remains above water, 62% of voters said they’d support cutting the state income tax from 5% to 4% — a move that could cost the state another $2 billion annually.

"There is a sense that something better might be out there," said pollster Jim Eltringham. The Massachusetts Democratic Party dismissed the poll as "deeply partisan... and even with that MassFiscal has Maura Healey winning by a significant margin."

The poll also showed U.S. Congressman Seth Moulton leading Sen. Ed Markey by double digits in a hypothetical U.S. Senate Democratic primary that Moulton is considering.

Moulton led Markey 43% to 21% among all voters, and 38% to 30% among Democrats, although 36% of voters remain undecided.

Shannon O’Brien chaired her first public meeting in two years at the Cannabis Control Commission on Wednesday. Reinstated last month following a protracted legal dispute with the Treasurer Deb Goldberg, O’Brien opened the meeting by framing her return as "a new beginning."

Another leadership change arrived as Public Safety and Security Secretary Terrence Reidy, who has overseen the state’s public safety apparatus since 2021, signaled that he is retiring from state government. Susan Terrey, steps into the role as interim secretary after serving as deputy secretary and homeland security undersecretary since 2019.

Reidy’s departure continues a wave of turnover in Healey’s Cabinet this year, following exits by the secretaries of transportation, economic development, health and human services and veterans services.

On Friday, Department of Mental Health Commissioner Brooke Doyle announced she's leaving her post, following a contentious budgeting cycle at the agency after the Healey administration attempted to slash half of the case manager workforce.

Energy policy, too, found itself in flux — with federal instability adding new urgency to the state’s goals.

The Healey administration hosted a solar summit this week aimed at reinvigorating the state's once-leading status in clean energy deployment. The event came just days after the federal shutdown derailed billions in climate funding and offshore wind permits, raising fresh concerns about the state’s clean energy future.

"Massachusetts used to be one of the top states for solar installation, and now we're in the middle of the pack," Healey said. "There's only so much we can control as a state. We can't control all of what's happening at the federal level, but my job and the job of this team in this room, including industry, is to figure out, what are things that we can operationalize here that we have control over."

The same One Big Beautiful Bill that’s poised to affect the state's tax collections also restructured tax credits for renewable energy, leading some in the industry to warn of coming cost spikes for consumers and delays in grid modernization.

As Beacon Hill heads into October, the mood is less crisis than fragility: budgets that balance on unspent funds, test scores that reflect unfinished recovery, energy goals at risk from federal reversals and political futures hanging in the balance.

ICYMI

Chris Van Buskirk moves from the Boston Herald to WBUR (Twitter)

‘Your struggle doesn’t negate your humanity’: Rep. David LeBoeuf opens up on coping with alcoholism (Globe Opinion)

Harvard pulls back gym access for Allston-Brighton residents (Boston.com)

Inside the MBTA's aging signal system as it gets a $295 million upgrade (WBUR)

Worcester nonprofit shut down after feds pull funding over its mention of DEI training (Worcester T&G)

Government shutdown shuts down Saugus Iron Works (Lynn Daily Item)

THE SUNDAY SHOWS

KELLER AT LARGE: 8:30 a.m., WBZ-TV. Political analyst Jon Keller's guest is Senate President Karen Spilka (D-Ashland). They discuss the impact of the Trump budget cuts, her opposition to new taxes, the new Senate data privacy law and recent revelations about improprieties by sports betting operators.

@ ISSUE SIT DOWN: 9:30 a.m., NBC 10. Reporter Matt Prichard interviews Boston City Councilor Sharon Durkan, who represents Back Bay, Beacon Hill, Kenmore, the Fenway and the West End.

ON THE RECORD: 11 a.m., WCVB. The guest is UMass Chan Medical School Chancellor Michael Collins.

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