With federal largesse continuing to rain on the states, Maryland’s fiscal leaders upgraded their revenue estimates for the next two fiscal years on Thursday, and Gov. Larry Hogan (R) used the economic forecast to expand a scheduled pay increase for state employees.
But the fiscal officials also cautioned that the U.S. economy has entered a new period of uncertainty and warned that state budget-writers must prepare for an economic slowdown.
“Amidst all these good vibes and another quick uptick in revenues, let me be very clear: The party’s over,” said state Comptroller Peter Franchot (D) at a meeting of the Board of Revenue Estimates.
Officially, the board, which consists of the comptroller, the state treasurer and the state budget secretary, voted unanimously Thursday to boost state revenue projections for the current fiscal year to $23.7 billion, an increase of $1.2 billion from the last time a projection was issued in March. The fiscal leaders also set the first revenue forecast for fiscal year 2024, which begins next July, at $25.3 billion.
“The fact that Maryland’s economy is still growing despite unforeseen factors over the past two years is a testament to the sound, long-term fiscal decisions made by this board, the Governor and the General Assembly,” Franchot said, after the official revenue forecast was delivered by Robert Rehrmann, the new division director at the Bureau of Revenue Estimates.
While Franchot, Treasurer Dereck Davis (D) and Budget Secretary David Brinkley broadly agreed that fiscal vigilance and prudence will be necessary in the years ahead, they had slightly different interpretations of the meaning and value of the surplus.
Davis noted that the state’s Rainy Day Fund, which generally carries about $500 million, has now ballooned to more than $1.6 billion. With so many Marylanders still economically needy after the COVID-19 pandemic, he argued, state budget-writers must find a way to use some of that money for residents with the greatest needs.
“Our job when we collect these tax revenues is not to have a robust bank account,” Davis said, noting the pandemic has laid bare economic and educational inequities in communities of color. “I see this now as an opportunity to pay down on some of the promises we as elected officials made to the voters when we asked them to elect us.”
The General Assembly, which appoints the treasurer and is taking on greater budgetary powers in the new year, is likely to seek more aggressive spending programs in the near term to address some of the challenges that Maryland’s neediest families face.
That course of action was also endorsed Thursday by the Maryland Center on Economic Policy, a progressive think tank and advocacy organization.
“Maryland’s current fiscal strength allows us to build opportunity for all Marylanders and ensure that communities across our state thrive,” said Benjamin Orr, the center’s president and CEO. “Millions of Marylanders are struggling to meet basic needs such as keeping a roof over their head and putting food on the table. Structural barriers built into our economy disproportionately push these burdens onto Black and Brown Marylanders. We can and should build economic security and opportunity for all through reforms such as expanding our state child tax credit and improving our unemployment insurance system.”
But Brinkley, who will prepare part of the upcoming fiscal year budget before handing it off to the next governor when Hogan leaves office in mid-January, praised Hogan’s fiscal stewardship and warned against profligate spending, reminding his colleagues that budget-writers are operating with “other people’s money.”
“It’s not a free-for-all,” he said. “The fiscal leaders have to be mindful not just of the forest, but the trees.”
Even with his budget chief’s note of caution, Hogan announced moments after the Board of Revenue Estimates meeting that he would expand a pay increase for state workers that the legislature had authorized earlier in the year. All state employees will now get a 4.5% raise on Nov. 1.
In a statement, Hogan cast his announcement as part of an ongoing effort by the administration to recruit and retain employees in the state workforce.
“After once again holding the line and bringing fiscal responsibility to Annapolis, we are able to take additional steps to honor our firefighters, law enforcement officers, nurses, and state employees for the meaningful work they do to change Maryland for the better,” he said. “This cost of living adjustment will help state employees and their families with the challenges they face from historic inflation and — amid the post-pandemic labor shortage — today’s actions advance our enhanced efforts to recruit and retain a talented workforce.”
But the narrative isn’t that simple. The legislature passed budget language last year that arranged for a raise for state workers who belong to AFSCME Council 3, the largest public employee union in the state, but the Hogan administration had resisted implementing the increase. Instead, his directive makes the raise available to all state workers.
Patrick Moran, president of AFSCME Council 3, hailed the salary boost, but faulted Hogan for not doing more for state workers during his eight years in office and said more credit for the raise rested with the legislature.
“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,” he said. “We appreciate [House] Speaker [Adrienne] Jones and [Senate] 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.
“It has been a financially devastating eight years, as average wages for state employees have fallen behind the rate of inflation by nearly 33.3%. This wage increase is a reflection of what happens when we join together to demand what we deserve, and this is just a first step to continue to fight for better pay and respect.”