The Maryland Budget received some bad news this week. The revenue projections for 2016 and 2017 were wrong dramatically. The State built a balanced budget by law on expert advice that now leaves the state with a $1 Billion less as projected Maryland revenue falls.
Maryland Revenue Expected To Fall $1B Below Earlier Projections
By Bryan Sears in The Daily
ANNAPOLIS — State officials said Wednesday afternoon that Maryland’s revenue picture will be bleaker than expected.
The Board of Revenue Estimates announced state revenues projections will be as much as $365 million lower than earlier forecasts for the fiscal year that started in July as well as $417 million below projected revenue for the budget year starting in January. Those new projections, combined with $250 million in actual lower-than-projected revenues for fiscal 2016, represent more than a $1 billion revenue decline from what had been projected.
Comptroller Peter Franchot, who chairs the board, said the news is proof of an economy that continues to falter and fails to bring recovery to the state.
“These are significant reductions in our estimates and reflect the volatility that Maryland’s economy continues to experience,” Franchot said adding that the figures “tell the story of what is happening in our communities and towns across the state.”
Despite the slower-than-expected growth in revenues, the state’s general fund budget is still projected to be around $17 billion for the coming year.
Franchot said the current revenue picture rules out any meaningful tax relief.
The comptroller also warned legislators not to enact any new taxes or fees that would affect the pocketbooks of state residents who have not seen their incomes grow in concert with rising costs.
“Policymakers must continue to exercise restraint and make certain that we don’t continue to impose greater financial burdens on Marylanders who already are struggling in this tepid economic recovery,” he said.
Last month, the Office of the Comptroller released closing figures for the 2015 tax year that showed revenue was off by $250 million.
The lower-than-projected 2015 revenues were attributed to lower net revenue from tax returns with payments owed to the state and returns with refunds as well as volatility in non-wage income, particularly capital gains taxes.
Andy Schaufele, executive director for the board, said similar problems affect the projections for the next two budget years, which will also be influenced by lower-than-expected 2016 final revenue numbers.
Schaufele said capital gains, which makes up about 5 percent of overall income tax revenues, continues to disproportionately affect the state budget. Not only is it extremely volatile, Schaufele said, but this year revenue from capital gains did not track with increases in the stock market.
“Tax year (2015) marks the first year since 1994 where, outside of tax policy changes, the market was up and capital gains were down,” Schaufele said. He added that the broader economy “represents the slowest expansion in post-World War II history.”
Treasurer Nancy K. Kopp, a member of the board, said she continues to have faith that the slowly growing economy will get better over time.
“It’s a very complicated, volatile and sensitive economy out there,” Kopp said. “These are prudent numbers. I think they may be conservative but that’s good.”
Sen. Richard S. Madaleno Jr., D-Montgomery and vice chairman of the Budget and Taxation Committee, blamed the lack of growth directly on Gov. Larry Hogan.
“Clearly Governor Hogan has failed to steer our state’s economy toward sustained growth,” said Madaleno.
Amelia Chasse, a spokeswoman for the governor, said the projections make it clear that the state needs to reform its budget process, and she blamed Democrats for blocking Hogan’s efforts.
“Today’s news should serve as a stark reminder that our state will continue to experience these types of periodic budget problems as long as the Majority Leadership refuses to adopt meaningful spending reforms,” Chasse said in a statement. “Let’s be clear – Maryland doesn’t have a revenue problem, certain members of the General Assembly have a spending problem. From day one, Governor Hogan has worked to rein in spending and enact fiscally responsible measures to put Maryland on a secure path, and to this day his efforts have been fought tooth and nail at every turn. Maryland families and business know they can’t spend more than they take in, and it’s far past time for our partners in the legislature to join with us and adopt this common sense approach to spending.”
The reduction of expected state revenue projections announced Wednesday raises questions about the potential need for mid-year budget action, either through directives to state agencies or cuts through the Board of Public Works.
“We’re still trying to digest this,” said state Budget Secretary David R. Brinkley.
“While Maryland’s economy is slowly growing, it isn’t growing as quickly as projected last year,” Brinkley said. “Despite a nearly 2 percent job growth rate there are other factors leading to a slower growth in personal income tax and sales tax that was expected.”
The governor, through the public works board, can cut funding for nearly every state agency by up to 25 percent without legislative approval.
The power was used several times by former Gov. Martin O’Malley during his two terms in office. The last time the budget was cut through the three-member board, which includes the state comptroller and treasurer, was in January 2015 before O’Malley left office.
Brinkley called on the General Assembly to enact legislation to reduce the effect of mandated budget spending similar to a bill favored by Hogan that was killed last year.
“While our revenues are increasing, they are not rising as quickly as the legislature’s mandated spending, leading to a widening of our structural gap,” Brinkley said. “The revenue picture shows why meaningful mandate relief is important.”