A state fiscal panel raised its projections for revenues in the current budget year by $1.2 billion but warned of slowing future growth.
The projected increase follows a closeout surplus of the previous fiscal year of more than $1 billion. Those increases continue to be driven by federal stimulus related to the COVID-19 pandemic. Comptroller Peter Franchot warned the sugar high is about to come crashing down as part of what he called inevitable laws of economic physics.
“The party is over,” said Franchot, who chairs the state Board of Revenue Estimates. “A close look at this well-crafted report … shows that the past few years of jaw-dropping revenue surpluses are firmly in the rearview mirror.”
Including Thursday’s estimates, the state has posted nearly $10 billion in budget surpluses over the last two years.
The initial $25.3 billion revenue projection for fiscal 2024 represents a growth of 2.2% over the upgraded estimate for the current year.
Robert Rehrmann, director of the Bureau of Revenue Estimates, described those estimates along with job growth projections as moderate.
“It is clear that the economy is at an inflection point and that the direct impacts of the federal stimulus are wearing off,” said Rehrmann, adding that the rate of growth of the general revenue forecast is decelerating and is “less than what we’ve experienced in the past two years but it’s below our long-term average prior to the pandemic.”
Maryland so far continues to post positive economic numbers even as the national picture looks unsettled with inflation reaching 40-year highs.
Rehrmann said the Federal Reserve Bank has been “pretty clear about what they are trying to accomplish. They’ve stated very clearly that in order to get inflation down it’s going to require a period of low-trend economic growth.”
He said it is too early to know if the interest rate hikes can successfully lower inflation without triggering a recession.
The Fed continues to raise interest rates. One official told a gathering of Maryland county leaders last month that the federal board would continue to raise interest rates as needed to tame inflation but that such moves could trigger a recession.
The three-member board, which includes Franchot, Treasurer Dereck Davis and state Budget Secretary David Brinkley, unanimously approved the forecast for the current year and fiscal 2024.
Members of the panel, however, differ in how to use the surplus.
Franchot and Brinkley urged caution in spending and called for much of the surplus to be socked away into the state’s Rainy Day Fund as a buffer against a potential recession.
“The key to this is it’s not that we want to keep it in the bank,” Brinkley said. “The RDF, the Rainy Day Fund, is the shock absorber for the state’s fiscal protection for when negative pressures or winds blow our way in the future. This should be a priority and not a convenience or afterthought.”
Davis, however, offered “a slightly different take” on the new estimate. The treasurer went on to quote President Abraham Lincoln on the role of government and doing for people the things they cannot do for themselves.
“We have a lot of need in our community,” said Davis. “Our job, when we collect these revenues, it’s not to have a robust bank account.”
“I see this as an opportunity to start paying down on the promises we as elected officials made to our citizens, the things we say we’re going to do for them when we’re running for office,” he said.
Some of the money will be earmarked for cost-of-living increases for state employees.
Gov. Larry Hogan announced Thursday that the board’s upgraded estimates would allow for a 4.5% increase to state employees. The raises will become effective Nov. 1.
And while Hogan said the move was a fulfillment of a promise made a year ago, leaders of the state’s largest employees union said none of it would have happened without help from Democrats in the General Assembly.
Patrick Moran, president of AFSMCE Council 3, called the last eight years “financially devastating.”
“Let’s be clear – this is a direct result of the work our union and members across the state have done with the leadership of the House and Senate,” Moran said in a statement. “We appreciate Speaker (Adrienne) Jones and President (Bill) Ferguson’s leadership and vision to ensure that state employees have additional resources to deal with rising inflation and to provide for their families and loved ones.”