Featured Posts

Baltimore Business Journal:Maryland faces budget shortfall of $925 million to $1.1 billion

The latest financial forecasts from the Maryland Comptroller's Office predict the state budget will face a shortfall between $925 million and $1.1 billion for the current fiscal year due to Covid-19, while job losses will continue through the end of 2021.

The range represents an improvement from the $2.8 billion hole estimated in a worst-case scenario in April, but the new projections show the impact of Covid-19 on the state's budget remains grim. By fiscal 2022, the shortfall could grow to as much as $4 billion.

"The outlook is dramatic and depressing at times," said Andrew Schaufele, director of the state’s Bureau of Revenue Estimates, during a virtual meeting on Thursday.

Schaufele outlined two scenarios based on real-time data collected by the state and financial models created by Moody's Analytics. One of the scenarios provides an optimistic projection based on Congress providing assistance to state and local governments and extending the Paycheck Protection Program to help small businesses keep employees on payroll. The other scenario does not make the same assumptions and provides a more dire outlook.

Both models assume scientists develop a vaccine that will be widely distributed by the fall of 2021, and that a second wave of the novel coronavirus does not lead to another widespread economic shutdown.

Here's how the state budget would look in each scenario. The current fiscal year ends on June 30:

In the more optimistic scenario:

Maryland would face a $925 million shortfall for fiscal 2020

$2.1 billion gap for fiscal 2021

$2.6 billion hole for fiscal 2022

In the more dire scenario:

$1.1 billion shortfall in fiscal 2020

$2.6 billion deficit in fiscal 2022

$4 billion decline in fiscal 2022

The outlook has improved since April in part because income tax withholding has been "far more resilient" than Schaufele expected. He originally predicted income tax revenue would decline 22% during the next several months. To his surprise, Maryland saw growth in withholding in April despite hundreds of thousands of people filing claims for unemployment insurance.

"This defies every bit of logic," Schaufele said.

One of the reasons could be that businesses entered the pandemic with strong balance sheets built up during a 10-year economic expansion, Schaufele said. He also said many employers are holding on to workers because they have looked to other cost-cutting measures first.

Government programs, such as the Paycheck Protection Program, could also be helping.

Despite the growth in April, Schaufele said he predicts withholding will still turn negative. He also said the state's economy faces ongoing downside risk as businesses continue to close and job losses grow.

In the scenarios, job losses double and triple in one quarter from the 123,000 lost during the two years of the Great Recession in 2008-09. In the worse of the two scenarios, jobs would still be 100,000 short of pre-pandemic levels by 2023.

Comptroller Peter Franchot characterized the situation the state faces as "an economic nightmare." He warned that if a vaccine is not developed quickly or if a second economic shutdown happens, the impact could become far worse.

Franchot said the latest projections serve as fiscal guidance to Gov. Larry Hogan and the General Assembly as they consider future budget actions. He warned against implementing new projects or programs that would cost a lot of money and acknowledged Hogan's vetoes last week of many bills.

Among the bills vetoed by Hogan was the "Blueprint for Maryland's Future," which would increase annual spending for public education by $3.8 billion by 2030 and cost $32 billion over the 10-year ramp-up period.

"We cannot be socially responsible if we’re not fiscally responsible," Franchot said. "As we enter this era of economic devastation, I cannot emphasize enough that now is the worst possible time, under the worst possible circumstances, to enter into massive spending projects that take more money out of consumers’ pockets, especially for the hundreds of thousands of our fellow Marylanders who are experiencing job loss, potential job loss and reduction in income."

Budget Secretary David Brinkley said the latest projections punch a 6% hole in the state budget in just three months. In the worse of the two scenarios, the state would see revenue fall back down to its level from fiscal 2016. Brinkley said the state will make budget cuts, but did not say what they would include.

Similar to Franchot, Brinkley said the state's ability to "weather the storm" depends on a willingness by officials "to make difficult decisions and sacrifice where we can."

"Remember, no one, no project, no program, no mandate and no formula can or will be automatically exempt from these actions," Brinkley said.

Recent Posts
Search By Tags
No tags yet.
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square

B Y  A U T H O R I T Y :  F R I E N D S   O F   P E T E R   F R A N C H O T   |   T O M   G E N T I L E ,   T R E A S U R E R