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Budget challenges await when leaders return to Annapolis

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Sen. Guy J. Guzzone, D-Howard, right, said ‘We are in a place that is much different. It is still reserved and concerned but no longer what we consider bleak.’ (The Daily Record Photo/Bryan P. Sears)

Lawmakers returning to Annapolis will face a difficult budget challenge as the result of the pandemic but it could have been much worse.

Revenue forecasts issued earlier this month by the Board of Revenue Estimates continue to show improvement. Since March, federal stimulus dollars, increased sales tax collections attributed to online sales and a better than expected capital gains collection helped the state avoid some previous worst-cases scenarios of multibillion-dollar losses once feared by state fiscal leaders.

“When we left in the very first couple of weeks, it was very very bleak,” said Sen. Guy Guzzone, D-Howard and chairman of the Senate Budget and Taxation Committee. “We are in a place that is much different. It is still reserved and concerned but no longer what we consider bleak.”

A financial picture that once looked historically bad now appears to not be on track to surpass the Great Recession, according to David Romans, fiscal and policy coordinator for the Department of Legislative Services.

Romans’, in comments to lawmakers last week, said the current situation “is pretty rough compared to where we’ve been the last seven or eight years but its actually quite a bit better than” the Great Recession.

Overall, lawmakers may really only have to solve a deficit of about $500 million in the coming session, an amount Guzzone and others agree is surmountable.

The forecasts do not include the potential for federal aid to state and local governments that could come after Joseph Biden is sworn in as president in January.

“So, while this is challenging it’s not on the magnitude of what the state dealt with 10 or 12 years ago,” he said.

Sen. Bryan Simonaire, the newly elected Republican leader, said the better than expected news needs to be balanced against the unknowns of a continuing pandemic and potential economic effects.

“We did get some short term good news,” said Simonaire. “I think in the long term we still don’t know what’s going to happen and so we should stay on the path of fiscal restraint.”

Part of that path, he said, includes sustaining Gov. Larry Hogan’s veto of the Kirwan education plan which Simonaire said remains too expensive and is now outdated because of how the coronavirus has changed education.

“There’s huge gaps in the bill,” said Simonaire. “They don’t have anything on virtual learning in Kirwan. They don’t have anything dealing with broadband accessibility. There’s so many holes in this grand plan that it is almost doomed to fail before it gets out of the gate.”

Maryland, under the revised forecast, is projected to collect nearly $18.8 billion in the current fiscal year, an increase of more than $68 million over estimates released in September. Revenues for the coming fiscal 2022 budget are projected to reach more than $19.8 billion, an increase of $142.6 million over a September forecast.

The December revenue projection for the current year is still expected to be nearly $609 million lower than the official March estimate. The projection for the fiscal 2022 budget is more than $312 million lower than an initial forecast three months ago.

"I urge anyone who interprets these updated projections to approach these figures with the utmost caution," says Secretary of Budget and Management David Brinkley. (The Daily Record / Bryan P. Sears)

‘We have significant challenges ahead of us but we do have resources,’ state Budget Secretary David Brinkley. (The Daily Record / Bryan P. Sears)

“We have significant challenges ahead of us but we do have resources,” said state Budget Secretary David Brinkley.

To offset the coming budget troubles, the legislature’s Joint Spending Affordability Committee is recommending a reduction in the state’s $1.2 billion rainy day fund. Currently, the fund balance is at 6% of the state general fund revenues. State law only requires a 5% balance.

Gov. Larry Hogan has already tapped the fund for $250 million that he has used for a number of business relief efforts since November including nearly $80 million for struggling restaurants and another $50 million for hotel and motel operators and the hospitality industry, all of which have been hardest hit during the pandemic.

Hogan said without the aid, 71% of hotels “would not last more than six months” based on projected occupancy levels and revenues.

“When the legislature returns to work next month for the 2021 session, we will be proposing a much larger economic and stimulus relief package which will provide further support for our struggling families and small businesses,” said Hogan, without providing details.

Comptroller Peter Franchot, a Democrat who has already announced his candidacy for governor in 2022, has called on Hogan to tap the state’s rainy day fund for $500 million in direct relief and later said the state could pay for a stimulus effort by taking cash set aside for projects and replacing it with borrowed money through bonds.

Guzzone said he couldn’t comment on Hogan’s plan before it is introduced but said lawmakers recognize that businesses need assistance.

“We obviously will have different priorities here and there but there is a constant that runs across everyone, Democrats, Republicans, that we have some basics we know who has suffered the most in all of this and we want to be as helpful as we can,” said Simonaire.

Simonaire agreed.

“I think we have a moral responsibility because businesses, through no fault of their own, have been shut down. It was the government that shut them down. It is the government that has kept them at limited their capacity and I understand why that had to happen but is was through no fault of the business owners.”

Legislative budget analysts said the state is in good shape to move forward with the Kirwan Education funding plan because of increased revenue from online sales taxes collected this year that went, in part, to a fund to pay for the program.

Supporters of the plan say that not only will the legislature not have to invoke a trigger provision that would allow for a delay in tough budget years, lawmakers may seek to move up the timeline on some spending to aid students who may fall behind because of school closures and distance learning.

“I think we have enough money for the first few years,” said Sen. Paul Pinsky, D-Prince George’s and chairman of the Senate Education, Health and Environmental Affairs Committee. “But if we, say, increase the money for tutoring, it might call for some adjustments and I think we can either shift the money or raise money but I think raising money is obviously somewhat conditional on what kind of federal support we get. There are a lot of dominoes here.”

The legislature, however, will need to override Hogan’s veto of the Kirwan bill as well as vetoes on a sales tax on digital downloads and streaming services, a cigarette tax and a digital advertising tax.

“The last thing that we need right now in the middle of this economic crisis, with so many small business owners and so many individuals suffering is to increase taxes on them,” said Hogan. “We’re trying to provide relief to keep them in business and then to charge a new tax to try to put them out of business just makes no sense whatsoever.”

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