Maryland’s low-unemployment, high-income economy shows cracks
As lawmakers head back to Annapolis for the start of the Maryland General Assembly’s 446th session Wednesday, much of their attention will be on what combination of tax increases or spending cuts will be needed to keep the state budget balanced.
After all, experts have warned that the gap between anticipated tax revenue and expenditures could grow to as much as $2 billion in five years. This is hardly a unique circumstance; many states are now struggling with structural deficits (California would be thrilled to face a shortfall like Maryland’s given its projected one-year $68 billion deficit). But to what extent might Maryland’s budget woes stem from broader issues with the state’s economy?
That’s a question that is raised by a new “State of the Economy” report released by the office of Maryland Comptroller Brooke E. Lierman. The 110-page paper presents a worrisome dichotomy. While at least two key economic indicators suggest the state’s economy is doing great — Maryland has the highest median household income ($108,200) and the lowest unemployment rate (1.8%) of any state in the nation — its overall growth is stagnant. Worse, this lack of economic expansion started well before the COVID-19 pandemic. In other words, it may be that Maryland is living in the past while other states, notably neighboring Pennsylvania and Virginia, are producing more goods and services. While the nation’s gross domestic product grew 13.9% between 2016 and 2023, Maryland’s grew by just 1.6%.
Why the GDP anemia? The Lierman report observes a number of factors at play, including a reduced labor participation rate that makes it difficult for businesses to expand even if they would like to hire. This choice not to work is might correlate to a lack of child care, a rise in opiate use and limited access to health care. Meanwhile, Maryland residents aren’t having children at the rate of adults elsewhere, net migration trends out of the state rather than into it, and housing costs are high, which can cause individuals to move to other states and telework here instead, in this era of remote work.
None of this should be regarded as alarming. Maryland still has many advantages going for it, including its proximity to the nation’s capital and a quarter-million or more federal jobs, not counting the thousands more ancillary private sector jobs. Among the key assets are a concentration of institutions of higher education, health care, biotech and medical research (the Bethesda-based National Institutes of Health alone employs nearly 18,000 people), as well as the Port of Baltimore and its mid-Atlantic location convenient to the Interstate 95 corridor.
But there is a big difference between a thriving economy and one that may be gradually losing its luster.
What can be done to reverse this trend? The comptroller’s report doesn’t offer a road map exactly, but some strategies are obvious. It’s vital to nurture a workforce and that requires such amenities as adequate housing, child care and health care, all of which must be affordable. If adults in their prime can’t afford to live in Maryland, they simply aren’t available to fill jobs here either. And businesses that can’t fill jobs are likely to move elsewhere. Republicans like to credit Red State growth to low taxes, but cheap land — and a willingness to let developers build on it — may loom larger.
None of this is to suggest that state legislators should not pay attention to those projected budget deficits. Of course, they must. And, as we’ve noted before, among their highest priorities must be to properly fund K-12 public education and the reforms promised by the Blueprint for Maryland’s Future. But they must also look to rev up Maryland’s private sector economy and stop the stagnation.
One of the keys is, of course, to steer greater opportunities to Maryland’s largest city. No resource, no portion of the state’s population, has been more neglected and under-utilized. Tapping that asset alone could ensure a much brighter, more prosperous future.