A glimmer of hope for state’s budget

Posted: 12:48 pm Wed, September 1, 2010
By Nicholas Sohr
Daily Record Business Writer

ANNAPOLIS — Maryland finished its budget year with $183.7 million more than expected, providing a glimmer of hope following years of painful budget cuts and the promise of more to come.

State officials said they were optimistic the revenue report released Wednesday by Comptroller Peter Franchot is a sign of a strengthening economy. That outlook is markedly different from last year, when the state used cuts, fund transfers and other accounting maneuvers to shore up a more than $1 billion mid-year budget gap.

And those who oversee the state’s budget were quick to point out the extra revenue will not fuel a spending spree, and will instead be socked away for next year.

Warren G. Deschenaux, the legislature’s top budget analyst, said the revenue report is “a sign of bottoming out” and a return to economic growth.

“I would say it’s not a cause for popping a bottle of champagne,” Deschenaux said, “but it may be a sign that we can open a beer.”

The state took in $12.6 billion in taxes in fiscal 2010, which ended June 30. The total beat forecasts by 1.5 percent, but was still $313 million less than last year, and $1.1 billion less than 2008, when revenues peaked.

Gov. Martin O’Malley called the report “a great step forward” and a sign Maryland should be a leader in the recovery.

“We’re still coming out of this recession. We still have a lot of work to do. But with five months in a row of positive job growth, we’ve seen an increase in our revenues,” O’Malley said.

Maryland added 40,000 jobs from March through July, though growth slowed in July and the unemployment rate remained unchanged at a seasonally adjusted 7.1 percent.

Budget Secretary T. Eloise Foster said the uptick in state revenues that contributed to the $183.7 million came during roughly the same period, from March to June.

Most of the unexpected revenue came from individual income taxes ($108.5 million over estimates), corporate income taxes ($25.5 million) and the sales tax ($40.8 million). Death, or estate, taxes, came in 7.2 percent, or $11.7 million, above expectations.

Franchot, the state’s top tax collector, cautioned that the state has a tough road back to stable fiscal ground.

The state collected 25 percent more in corporate income taxes and saw more business filing fees than the year before, which indicates creation of new businesses, according to the report. But the state saw less revenue from the courts — $7.1 million less than last year and $12.8 million less than expected.

“These revenues are largely related to real estate activity, and are reflective of continuing weakness in the housing market,” the comptroller’s report stated.

Sales taxes and individual income taxes both fell in 2010 compared to the year before, declining a combined $459 million, a staggering total, but less than what the state had predicted.

“The good news is we managed to outperform the catastrophic revenue projections we had been living under,” said Comptroller Peter Franchot, adding later: “Anyone who thinks we can just row out of this should just stop crossing their fingers.”

Indeed, analysts expect a $1.6 billion gap between revenues and expenses in the fiscal 2012 budget, which will be introduced by the governor this winter and then further shaped by the General Assembly into April. The first revenue projections for that year will be released this month.

Much of the unexpected $183.7 million surplus and the $150 million surplus built into the budget by the General Assembly will go toward offsetting that expected deficit.

“It doesn’t mean we have a pot of $100 million or $200 million to spend,” said Treasurer Nancy K. Kopp. “That [surplus] diminishes the projected deficit.”

Deschenaux said some will also be used to make up for Medicaid matching dollars that won’t be coming from Washington. O’Malley’s budget anticipated $389 million from the federal government, but the state received only $273 million.