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Md.’s revenue picture not as bleak as projected — for now

The improving fiscal climate in Maryland supports the case that officials should not rush to impose layoffs and pay cuts on state employees, says AFSCME Union leader Patrick Moran.

The improving fiscal climate in Maryland supports the case that officials should not rush to impose layoffs and pay cuts on state employees, says AFSCME Council 3 President Patrick Moran.

Maryland’s top tax collector is calling for sending more than half a billion dollars in state aid immediately to small businesses following a better-than-expected report on the state’s finances.

State revenues for fiscal 2020 underperformed expectations by $102 million — but it could have been worse.

Projections made earlier this year warned of a loss of revenues, driven by the ongoing COVID-19 pandemic, approaching $1 billion. Instead, the state is looking at nearly $586 million in unallocated surpluses. Comptroller Peter Franchot declared the report a temporary piece of good news in an otherwise gloomy 2020.

“It’s a stopgap piece of good news but it’s only for the instant we live in and it’s dependent upon the federal relief plan, which frankly proved to be more successful that we thought,” said Franchot. “We didn’t realize that the employees were not going to be laid off but were going to be tided over with the federal PPP plan. That’s proven to be very successful, but it meant a lot of wage revenue we thought was going to be pulled off the table appeared.”

Franchot Wednesday called on Gov. Larry Hogan to use that unallocated surplus to help bolster small businesses similar to how federal aid was provided earlier this year, though the comptroller said on “a smaller scale.”

Franchot said the surplus would be better spent aiding small businesses than holding it back to offset future budget deficit projections.

“As the feds have shown us, it’s more important to spend money right now saving small businesses than it is paying a lot more money down the road to try and put the pieces back together in a really heavily shattered small business economy,” the comptroller said. “I’m not saying we match the feds. We can’t possibly do that but spending the $585 that we’re reporting and keeping the $1.2 billion in reserve in the rainy day fund, I think, is adequate protection.”

Overall, the more than $18.6 billion in revenues for fiscal 2020 represents an increase of 2.4% over the previous year but was still slightly lower than original projections. Those estimations, however, came before the coronavirus pandemic, which arrived in Maryland in March and hobbled the economy this spring including the loss of 338,300 jobs by April.

Soon after, Franchot cautioned that the state could take a hit in revenues to the tune of $2.8 billion.

That projection was revised by the Board of Revenue in May when that panel forecast a loss of between $925 million and $1.1 billion. The estimate, however, did not take into account some of the effects of federal aid to businesses as well as the additional $600 per week in supplemental unemployment payments or allowing self-employed workers to claim benefits.

“This is a cataclysmic event that is occurring. We’re living through it. We’re learning from it,” Franchot said. “We didn’t correctly understand the impact of the billions and billions of dollars that the feds were allocating. Thank goodness they did.”

Additionally, the state collected higher than expected capital gains taxes.

Franchot said the better than expected end of the budget year gives the state the ability to help stabilize small businesses who are still reeling from the sluggish economy as the pandemic enters its seventh month in Maryland.

Franchot acknowledges the good budget news is only temporary.

The state budget is still facing significant projected shortfalls, both for the current year and, at the very least, in the fiscal 2022 budget, which Gov. Larry Hogan will propose in January.

Fiscal leaders are still looking at the potential for hundreds of millions in additional cuts and have not ruled out furloughs and layoffs. State Budget Secretary David Brinkley told lawmakers last month that Maryland has managed to maintain its rainy day fund of nearly $1.2 billion in anticipation of needing it in the future to offset budget shortfalls.

Franchot said difficult decisions loom in the future.

Patrick Moran, president of AFSCME Council 3, said the end-of-fiscal-year report was encouraging and proved that proposed cuts that were delayed earlier this year were unnecessary.

“We have said from the beginning that the governor needed to be prudent and not just wildly cut state services and those who deliver them,” said Moran.  “This report validates our position.  Going forward, the number of positive cases in Maryland continues to rise. Public employees continue to be on the front line of containing the spread of the virus and mitigating the social and economic effects on our neighbors. We urge caution and measured actions to ensure our state can economically recover.

Moran called on Hogan to find additional savings by trimming $1 billion from contracts with the state and state universities. Additionally, the union called for reductions in management, merging state employees currently in seven separate personnel systems as well as reducing or eliminating tax that are “ineffective or unnecessary”

The state faces a projected $4 billion budget gap for fiscal 2022, assuming the federal government comes through with a stimulus package that includes aid for state governments and that there is no additional resurgence in the virus.

 

Michael Ricci, a Hogan spokesman, said looming budget gaps and the potential of no aid from Washington requires the state to be cautious in spending the nearly $586 million unallocated surplus or the rainy day fund.

“This report reflects some of the aggressive fiscal actions our administration took, including targeted reductions and deployment of federal funding,” Ricci said. “However, Maryland still faces a massive budget hole for fiscal year 2021, and well into the future. With all the uncertainty surrounding the economy and Congress, this is no time to take any actions off the table or rush to empty the rainy day fund.”

 

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