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Daily Record: Franchot warns economic ‘winter is coming’

ANNAPOLIS — Maryland’s tax collector warned of an increased risk for an economic downturn and called for state leaders to sock away more than a billion dollars.

Comptroller Peter Franchot made his cautionary comments as the Board of Revenue Estimates projected one of its smallest write-downs — about one-tenth of a percent in the current year — in state revenue in recent years. Franchot, who is chair of the revenue estimates panel, quoted from the popular television show “Game of Thrones” as he cautioned lawmakers to consider the specter of a recession.

“I don’t want to jinx it,” said Franchot. “Nobody is in favor of recessions, but winter is coming. So, let’s prepare.”

Franchot called on lawmakers “to park” nearly $1 billion in combined surpluses in the state’s rainy day fund. Those additional funds, Franchot said, “have nothing to do with economic growth.”

“We cannot expect that we will defy the laws of economic gravity,” said Franchot.

Lawmakers are eyeing a report that recommends a $4.4 billion boost to education over the next few years. In 2002, a similar expansion of education spending, referred to as Thornton, added $1.3 billion to the state budget. Lawmakers passed that proposal without a plan to pay for it.

The nation later fell into one of the deepest economic downturns in recent memory. In Maryland, officials were forced to make drastic cuts to state budgets, furlough employees and eliminate positions while reducing some services.

“It was a mess,” said the comptroller.

Implementing Franchot’s recommendation would effectively double the state’s required reserves.

The call to save comes against the backdrop of growing concerns about a looming recession as well as an expected push to pass a new education funding plan with a price tag currently set at $4.4 billion annually once phased in over a decade. The current estimate for increased K-12 education spending would add 20 percent to the current general fund budget.

“I hope they’ll look at what they’re planning to do,” said Franchot. “It’s not a Democrat or Republican issue. It’s just a, ‘Guys, we’ve already gone through this. We’ve experienced the problems of passing Thornton without having the funding for it. We’ve experienced the big recession and the cuts.'”

The board Wednesday voted to make what Franchot called “minuscule” reductions in revenue projections of about $18 million in the current budget year and $54 million for fiscal 2020.

Overall, state revenue has been on the rise, bolstered by higher sales tax collections following a Supreme Court ruling opening the door for states to collect from online retailers. The state also has seen increased income tax collections due to 2017 federal tax changes that lowered overall taxes for some Maryland residents even as they pay more to the state.

But there are troubling signs on the horizon, including a federal government that appears to be “working at cross purposes in terms of economic policy,” according to Andrew Schaufele, director of the Board of Revenue Estimates.

There have been 113 consecutive month of economic expansion following the so-called Great Recession — six months shy of the record set in the 1990s.

Additionally, the state is seeing a lag in wage growth and permanent long-term employment, coupled with a loss of federal jobs and the threat of federal shutdown before the end of the year.

Business leaders told Franchot Wednesday morning they are concerned about an economic downturn.

Nationally, banks are beginning to prepare for a coming recession by pulling back on investments, said Schaufele while cautioning that there is no way to predict the timing of a downturn.

“When market contributors begin to scale back en masse in expectation of recession, it triggers that recession,” said Schaufele. “Expectation becomes reality.”

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