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Budget analyst: ‘Days of miracle and wonder’ have bolstered state’s fiscal standing

Surplus
Unsplash.com photo by Vladimir Solomianyi.

Maryland is well-equipped to survive a mild recession, fiscal analysts told state lawmakers Tuesday — thanks in part to all the federal largesse that has come the state’s way in recent years.

The General Assembly’s Spending Affordability Committee and other fiscal panels held an online budget briefing Tuesday, digging into an array of statistics, revenue estimates and economic projections ahead of Spending Affordability’s annual meeting next month to set targeted spending levels for the upcoming fiscal year. Overall, the news was pretty good.

David Romans, coordinator of fiscal and policy analysis at the Department of Legislative Services, conceded that while there were fears of the state taking huge financial hits during the early stages of the COVID-19 pandemic, federal aid has bolstered the state budget along with stronger than projected tax revenues. The federal government alone has accounted for an extra $25 billion in state coffers over the past three years, Romans told lawmakers.

“We’ve come through three years, purely from a budgetary point of view, of days of miracle and wonder,” he said.

Revenue estimates show the state government running annual budget surpluses of $1.5 billion through fiscal year 2025, the legislature’s analysts said, though it would drop to $600 million in FY 2028 due to a shortfall in designated funding that year for the Blueprint for Maryland’s Future, the pricey education reform plan that is slowly being implemented.

But the fiscal analysts told lawmakers that current surpluses, including a more robust “Rainy Day Fund” than usual, leave budget writers with an array of options for potentially lean times.

Whether a recession hits Maryland in the coming year remains an unknown.

“I think it’s obviously the elephant in the room as we go forward with the [2023 legislative] session,” said Sen. James Rosapepe (D-Prince George’s), co-chair of the Spending Affordability Committee.

Theresa Tuszynski, a policy analyst at the Department of Legislative Services (DLS) said the DLS recently received new economic projections from two forecasting firms. One, from Moody’s Analytics, assumed that the U.S. economy would slow but remain fairly stable. The other, from IHS Markit, anticipated what Tuszynski called “a shallow recession” in the U.S., beginning in the fourth quarter of this year and lasting until the third quarter of 2023.

Under that scenario, she said, the unemployment rate in the U.S. and in Maryland would be expected to go up to about 6%. The current rate is 3.7% nationally and 4% in Maryland.

By contrast, unemployment in Maryland during the Great Recession topped out at about 10%, while it ran to about 6.3% during the recession caused by the bursting of the tech bubble about two decades ago.

“Most economists would suggest that recession was pretty narrow, though it did take a long time to get the unemployment rate down,” Tuszynski said.

Romans suggested that even with the possibility of a recession, Maryland budget-writers will have the option of using surpluses for special priorities, such as bolstering the Blueprint fund or trying to prop up the state’s retiree health insurance program, which needs an infusion of $16 billion to be fully funded.

That figure alarmed several lawmakers.

“Is there a doomsday scenario that you see?” Del. Nino Mangione (R-Baltimore County) asked Romans.

Romans said the state has been filling funding gaps in the state retirement system in piecemeal ways, and “other than that, the state’s been on pretty good financial footing.”

“It would be better to do something than nothing, but we’ve been muddling along,” Romans added.

On another topic related to the health of state government, the fiscal briefers noted that thousands of jobs remain unfilled at state agencies, with vacancy rates now topping 10% at some departments and getting as high as 16% at others.

“I think it’s fair to say it’s historically high,” another budget analyst, Tonya Zimmerman, said of the vacancy rate.

Gov.-elect Wes Moore (D) has vowed to rebuild state government and fill the vacancies at state agencies. He has tasked his new chief of staff, Fagan Harris, and his nominee to be Appointments secretary, Tisha Edwards, with diversifying the state workforce and attracting talent that is often overlooked.

With Moore set to take over from Gov. Larry Hogan (R) on Jan. 18, the next state budget will be crafted jointly by the Hogan administration and the Moore administration. But thanks to a statewide ballot initiative passed by voters in 2020, the General Assembly beginning next year will have more say over budgetary matters than it traditionally has.