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Working & the Economy

Maryland’s Economy: Very Good (For Now), But Extended Shutdown Could Be Devastating

Maryland lawmakers will craft a budget this legislative session in about as favorable an environment as they could hope for, an economist said Tuesday.

Well, federal government shutdown aside, of course.

Dan White, director of government consulting and public finance research at Moody’s Analytics, said unemployment is very low, wages are increasing, and the country is at the top of an extended economic expansion. But celebration should be short-lived as lawmakers look ahead to the next possible economic downturn, he said.

By most economists’ best guesses, the next recession to hit America will probably come in mid-2020.

“Where we are today is a very good place,” White said.

But a possible trade war with China or an extended federal government shutdown should cause lawmakers to proceed with caution, he told the Senate Budget and Taxation Committee on Tuesday.

It’s normal that economists can’t pinpoint the exact start of a recession, White said, but “what is not necessarily normal is a lot of the gasoline that seems to be thrown on the fire from our friends in Washington, D.C.”

A top concern for the state of Maryland should be the federal budget and shifting priorities within it.

“Even before we get to the government shutdown, there’s been a lot going on in D.C. that has not necessarily been very good for Maryland jobs over the last year, year-and-a-half or so,” White said. Increases in direct spending in the federal budget have gone to defense and agencies that are not headquartered in Maryland, he said.

And then when you look at the shutdown, a lot of the agencies with a large presence in Maryland are the ones affected most heavily.

The economic effects of the shutdown compound over time, and if the closure extends another month or two, the result could be “devastating” to D.C. area economies, White said.

“If we get to March without some kind of an agreement to this government shutdown, then it will be enough to cause a recession in the United States,” he said. “And Maryland and Virginia would be squarely at the epicenter of that recession.”

Amidst all the uncertainty, Gov. Lawrence J. Hogan Jr. (R) will release his proposed budget for 2020 on Friday.

While lawmakers headed into this session with a projected surplus thanks to increased tax revenues and lower costs in programs such as Medicaid, a new state report released Monday warned of a nearly $60 million hit to state tax revenue as the result of the federal shutdown so far. Some of that revenue will be recovered if government workers receive backpay, but a portion of the lost revenue is not likely to make its way back to the state, the report warned.

Lawmakers also must balance a number of new funding requests, including big-budget items like the interim recommendations from the Kirwan Commission and investment in statewide next-generation technology for 9-1-1 emergency call centers.

Asked by lawmakers what they should consider during budget negotiations, White said to sock away some extra cash.

“The best advice we can give you is to put money away in your Rainy Day Fund,” White said. He also advised lawmakers to be cautious in considering big-ticket, long-term spending plans, based on the assumption that a nationwide recession could come in 2020.

“It’s very important to remember what comes after the top of the business cycle as you put that budget together and to be very cautious with bringing anything on that you don’t want to have to try to undo in two years,” White said.

One reason several states had a very hard time economically in 2008 is that they weren’t prepared for a downturn. “A lot of the spending increases that went into effect in 2006 and 2007 were undone very quickly in 2008 and 2009,” White said.

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Maryland’s Economy: Very Good (For Now), But Extended Shutdown Could Be Devastating