Three of the state’s top fiscal leaders are urging caution even as Maryland’s revenue picture continues to over-perform compared to dire projections issued in May.
The state’s Board of Revenue Estimates, which includes the comptroller, state budget secretary and state treasurer, issued updated estimates Tuesday that are better than a bleaker forecast issued in May. The revised forecast, however, is still lower than expectations for the year and is likely driven by temporary fixes, including federal stimulus money in the form of state aid and additional unemployment benefits, both of which are expiring.
“It is impossible to responsibly craft sound public policy when we don’t know where the state is heading fiscally,” said Comptroller Peter Franchot, who chairs the panel.
The board is forecasting that the state will collect more than $18.7 billion for the current fiscal year. The projection represents an increase of $1.4 billion compared to an update by the board in May.
Similarly, the board revised upward its initial May projection for the next fiscal year to nearly $19.7 billion, an increase of more than $2.1 billion over the spring forecast.
Both projections, however, represent lower-than-expected revenues based on March projections, which are the ones that ultimately guide final budget decisions. The current year’s budget, based on the new forecast, would be nearly $673 million lower than the March figures on which the budget is based.
Treasure Nancy Kopp cautiously applauded the more optimistic projections.
“But we don’t know what’s coming,” said Kopp. “We don’t know what the federal government will be doing. We don’t know what will be happening if we have a wave, another wave of the pandemic. So, it’s very good to have these good strong numbers but also to realize that things change and it’s the numbers in December which are really going to be the most significant for this coming fiscal budget.”
The revised projection for the coming budget year represents an increase of 1.5% when compared to the original fiscal 2021 revenue picture. An increase of twice that amount would likely be expected in a year unmarred by regular or pandemic-driven recession.
Concerns remain about the volatility of the economy and whether revenues from income tax withholdings as well as federal aid to businesses could be “a sugar high rather than anything that is economically sustainable,” according to State Budget Secretary David Brinkley.
“I urge anyone who interprets these updated projections to approach these figures with the utmost caution,” Brinkley said. “We’ve seen how volatile the virus can be, which translates directly to how volatile our economy and subsequently our revenue picture will be for the next two and even three years. If we’re not dutiful in our adherence to the CDC’s public health guidelines we could see Maryland’s infection numbers spike into dangerous territory, risking a further slide in the economy and voiding our progress.
But the optimistic projections now make what was once believed to be a looming black hole in the budget much more manageable, at least in the short term, said Brinkley.
In the spring, Gov. Larry Hogan imposed a hiring freeze. Over the summer, he and the Board of Public Works approved more than $400 million in budget cuts.
The better-than-expected revenue picture coupled with federal pandemic aid has allowed the state to avoid using its $1.2 billion rainy day fund. Additionally, the state has another $500 million in unallocated surplus funds.
“With this public health and fiscal crisis far from over, it is no time to declare victory,” Hogan said in a statement. “Though we are in a better position both economically and health-wise than much of the country, this is still the biggest fiscal challenge we have ever faced. We will continue to plan for the worst, press Congress to act on additional relief, and make the tough decisions necessary to balance our budget.”
The report issued by the board, however, represents a best-case scenario. It does not take into account a lack of a second federal stimulus package to states or a second wave of the novel coronavirus.
“The outcome for these two key assumptions remains uncertain at this point and time so I would expect, especially if there is a second wave or if there isn’t significant stimulus, that come the next board meeting in December we will be talking about a significant (revenue) write-down,” said David Farkas, acting director of the board. “We could potentially even be talking about something on the order of magnitude of the May guidance.”
The panel is so concerned about the potential risk factors and uncertainty driven by the pandemic that it will issue a second, unofficial “alternative downside scenario” forecast that is expected to be published as early as next week.