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The Daily Record: Franchot on economic impact of virus: ‘The storm has finally arrived’

ANNAPOLIS — The COVID-19 pandemic has sent the state’s economy and budget into one of the steepest nosedives in history, according to a top fiscal analyst for Comptroller Peter Franchot.

Maryland revenues could take an estimated hit of $185 million per month during a virus response that includes a shuttering of businesses. Sales tax losses could amount to 59% of all sales tax revenue, or $250 million per month, according to preliminary estimates provided by Andrew Schaufele, director of the Bureau of Revenue Estimates at the Office of the Comptroller.

All told, it’s a potential shortfall of approximately $2.8 billion during the final quarter of fiscal year 2020, which ends June 30. The economic impact to the state’s business community and working families represents a loss of nearly 15 percent to the state’s annual general fund.

“It’s not just the magnitude of the crisis, it’s the timing,” said Schaufele. “Never have we seen such a torrent of negative economic news hit with only three months before the end of the state’s fiscal year.”

The timing puts pressure on Gov. Larry Hogan and the Board of Public Works to act to balance the budget. Hogan Friday afternoon announced hiring and spending freezes and said his budget team is looking for potential cuts.

“The magnitudes of the impact make this no simple exercise,” said Schaufele. “There will be no simple fiscal response. This means fiscal leaders will need to find opportunities to balance the budget that likely have never been discussed before. We should plan for the worst and hope for the better.”

“Trust me, the storm has finally arrived,” Franchot said, noting that he has repeatedly called for increasing the amount set aside for an economic rainy day. “And it is stronger and more devastating than we’ve ever seen before.”

The recovery, Franchot said, will not be short.

“I know there’s some delusional predictions out there that we can get back to normal, switch the economy on like a lightbulb,” said Franchot. “It’s not going to happen. People need to understand that and be told the truth and that this is something that’s going to take years to recover from.”

The briefing Friday morning was the first official, though preliminary, look at the potential negative effects on the economy and the state budget, projections Schaufele said could be a worst-case scenario and assume the stay-at-home order remains in place through the end of June.

“We cannot reliably estimate the likelihood of that scenario,” said Schaufele. “We’ll stay in our lane and react to what the experts are saying. But this is what prudent fiscal planing looks like.”

Franchot and Schaufele, in their fiscal briefing on Facebook, praised Hogan for taking difficult steps that could mitigate the spread of the virus even though they will slow the economy.

“The stay-at-home order as well as social distancing are absolutely creating the steepest economic nosedive in modern history,” said Schaufele. “But in their absence, the final economic impacts would be far greater and playing out over a much longer period of time.”

Franchot, along with Hogan and Treasurer Nancy Kopp, is a member of the Board of Public Works. That panel has the authority to cut up to 25% of a department’s budget without legislative approval.

Franchot was on the panel during the Great Recession and said the kinds of cuts required of the board this time will be more drastic than the $1 billion cut by the board when it was chaired by Gov. Martin O’Malley.

“That period, as awful as it was and it was just horrendously painful, is going to be like a picnic compared to what we’re going to go through with this coronavirus impact on our state budget,” he said. “What we’re talking about is something that’s obviously unprecedented.”

Hogan, speaking Friday following Franchot’s briefing, said his budget team is reviewing the numbers produced by comptroller.

“I think he was looking at the worst-case scenario,” said Hogan. “Hopefully, we will not have to make the kind of cuts he was envisioning, but that’s certainly a possibility.”

Since the first cases were reported in the state on March 5, Hogan has responded with a series of escalating executive orders that have included the closure of all non-essential businesses and stay-at-home orders in an attempt to mitigate the spread of the virus.

And while public health experts await hopeful signs that the moves have flattened the curve of infections, their effect has been traumatic for the economy.

Dark storefronts and empty parking lots foretold the coming storm of first-time unemployment filings that on Thursday surpassed 108,000 for last week and approached 250,000 for the last three weeks — an increase of 5,200%, according to Franchot.

Other workers have had hours and wages reduced, Franchot said, calling the numbers “snapshots of a terrifying moment in time” for workers and small businesses.

“The road to fiscal recovery will be long and difficult,” he said. “I don’t want to sugarcoat this.”

Nationally, more than 15 million people filed for unemployment over the same period.

Franchot said the end of measures meant to control the spread of the virus must be dictated by public health data.

So far, Hogan and his team of public health experts have been cautious in publicly discussing a timeline for a return to normalcy.

Similarly, Hogan and his team have said it is not yet clear how that return will happen and have suggested it will be phased in, comparing it to a dimmer on a light rather than flipping a switch.

“In addition to defeating this invisible enemy, this killer virus, and saving thousands of lives, nothing is more important to me than getting our economy and our people back on their feet,” said Hogan.

https://thedailyrecord.com/2020/04/10/franchot-on-economic-impact-of-virus-the-storm-has-finally-arrived/


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