Maryland lawmakers will have a little bit more cash to work with come budget season ― but not a whole lot more than previously projected.
The Bureau of Revenue Estimates on Wednesday voted to revise the state’s revenue projections for the current fiscal year up by 0.1%, or a $26.4 million increase to the $18.7 billion total. The board also voted to project an additional $115 million in revenues for the 2021 fiscal year, an increase of 0.6%.
The revision ― which sets the final figures on which Republican Gov. Lawrence J. Hogan’s 2021 budget proposal will bill based ―was driven by a slight uptick in the bureau’s outlook for wage growth and anticipated increases in tax revenue from capital gains, said Andrew M. Schaufele, director of the Bureau of Revenue Estimates.
Other changes to estimates include a decrease in expected state lottery revenue, as multi-state games haven’t generated big jackpots to drive ticket sales and state games are paying out higher-than-expected sums.
The new estimates also assume that the federal government will not shut down when a budget resolution expires on Dec. 20.
“We can’t ignore how volatile D.C. has been ― and you have to wonder how impeachment could factor in,” said Schaufele.
To help address future uncertainty, Schaufele encouraged lawmakers to keep in place a revenue volatility cap, which generally limits how much the state budget can depend on capital gains tax revenues from Maryland’s wealthiest residents and limits how much of those taxes can be spent in a given year.
The cap was approved by lawmakers in 2017 after a study showed that the top 1% of taxpayers in the state accounted for about 20% of the income tax, so a good or bad year in the stock market could cause dramatic swings in that revenue source that are hard to estimate. However, the cap has never been fully implemented and was substantially reduced in the current budget year.
During the Great Recession, capital gains collapsed about 76%, which amounted to about 10% of the state’s income tax revenue or 5% of the state’s general fund, Schaufele said Wednesday.
With the office’s continued warnings about a potential recession in the offing, the legislature should more fully implement the cap during the 2020 session, Schaufele suggested.
“When capital gains collapse, they do so immediately and violently,” he said.
The recommendations from Schaufele’s office were unanimously approved by the members of the Board of Revenue Estimates: Budget Secretary David R. Brinkley, Comptroller Peter V.R. Franchot (D) and State Treasurer Nancy K. Kopp.
In comments before the vote, Franchot urged lawmakers to exercise fiscal restraint when deciding how to spend tax dollars next session and suggested that lawmakers should “focus like a laser on dedicating themselves to taking care of the middle class in Maryland.”
“While we can rightfully breathe a collective sigh of relief that our economy as a whole is performing very well right now, we can’t forget the millions of Americans and small businesses that continue to struggle and aren’t feeling the benefits of our current economic situation,” Franchot said.
Kopp echoed some of Schaufele’s concerns about the federal government and a possible economic recession.
“It is a sound economy in the midst of potential problems. We hope there’s no shutdown, we hope they do something about the federal deficit, we hope that federal employment continues to go up,” Kopp said. “We are glad that state employment is going up and unemployment down, but this is a volatile world that we live in.”
Brinkley said lawmakers should focus during the 2020 legislative session on the long-term fiscal stability of state government.
“Revenue growth is barely keeping pace with inflation and it continues to grow more slowly than state spending,” Brinkley said. “…We must be cautious about building new, ongoing spending into the 2021 budget.”
Current estimates about the state’s structural deficit and future spending, Brinkley said, assume no recession and only a limited increase in new spending to implement the education reform recommendations of the Kirwan Commission.
“Maryland’s best path forward is to continue to show restraint, save for a rainy day and spend responsibly, always remembering that the taxpayers of Maryland deserve ― and they demand ― their money to be handled prudently,” Brinkley said.