State revenue estimated to shrink by $477 million, prompting budget cuts
Maryland’s economy and labor markets grew more slowly than state forecasters predicted, leaving new Gov. Wes Moore (D) looking for budget cuts just weeks after taking office with a $2.5 billion surplus on the books.
State forecasters said Thursday that tax receipts plummeted at the end of last year — far more than expected — as consumer spending and the job market slowed, too.
The Board of Revenue Estimates reduced its official predictions by $477 million over the next two years, a 1 percent trim overall that will force Moore to look for ways to snip his $63.1 billion budget — his first as governor — by $400 million.
“We have indications that the Maryland economy is underperforming relative to those modest expectations, and also relative to the U.S. economy,” said Robert J. Rehrmann, director of the Bureau of Revenue Estimates, which does data analysis for the board.
While corporate profits are up more than expected, the state’s non-wage tax revenue from small businesses and the stock market showed “a sudden and unexpected decline,” he said.
Maryland also failed to recover from pandemic job losses as quickly as the rest of the country.
“Had Maryland recovered at the same rate as the U.S., there would have been approximately 75,000 more jobs than there are currently,” Rehrmann said.
The new budget numbers follow years of swelling balance sheets and multibillion-dollar surpluses fueled by federal pandemic aid.
The impact of the turning economic tide was not immediately clear: Maryland has $2.5 billion stashed in a rainy day account and another $820 million undesignated for specific purposes in Moore’s budget.
“We will continue to be selective, disciplined and intentional with our investment decisions. Our constituents and taxpayers deserve no less,” said Budget Secretary Helene T. Grady, one of the three members of the Board of Revenue Estimates.
Comptroller Brooke E. Lierman (D), another board member, said in a statement that “the revenue forecasts should not be considered alarming, but they should be seen as a flashing yellow light — a warning that the economy of Maryland is seeing the lingering effects of national inflation, with a disproportionate impact being felt by our families making low to moderate incomes.”
Lierman and Rehrmann each noted that Maryland depends on capital gains and noncorporate business income to fund state government. Nearly 20 percent of state tax dollars come from those two sources, they said, which makes it hard to predict.
“We’re getting more and more money from fewer and fewer taxpayers,” Rehrmann said. “When you get down to these smaller and smaller numbers, it’s becoming less about macroeconomic numbers.”
Republicans in the House of Delegates, who are in the minority, issued a joint statement urging financial prudence.
“Past is often prologue, and we have seen this movie before — a new Democratic Governor spends through surpluses just as the economy tanks, leading to nearly a decade of tax and fee increases,” they said in a statement. “We have a moral responsibility to ensure we are not setting up our citizens for significant tax increases at a time when they can least afford them.”