By Donald C. Fry
Many in Maryland’s government will be anxiously awaiting fiscal projections to be delivered at next week’s state Board of Revenue Estimates meeting, scheduled for September 16.
Government leaders will be seeking substantive signs that state revenues are beginning to recover from a traumatic, recession-driven fiscal year that ended July 31, when state baseline general fund revenues declined by 3.7 percent, marking a second consecutive year of declining state revenues, according to data released on Sept. 1 by Comptroller Peter Franchot.
Collections in FY 2010 declined for the top two revenue sources – individual income tax and sales tax – that together account for more than three-quarters of revenue to the state’s general fund. Individual income tax revenue declined by 4.6 percent, while sales tax collections declined by 2.7 percent. Collections also declined for six of the remaining 12 revenue categories.
Despite the decline for the year, some encouraging data for revenue watchers surfaced near the end of the fiscal year. General fund revenues for June increased 2.8 percent over the previous year, including growth in individual income tax and sales tax collections. For the month, individual income tax receipts increased 4.3 percent. Also, June was the first quarter that experienced growth in estimated income tax payments since the third quarter of 2008, according to the Franchot revenue letter to state leaders.
Among major revenue sources, only lottery revenue declined in June, and most other revenue sources showed some growth..
And even though overall revenues declined for FY 2010, they exceeded the revised revenue estimates by $183.7 million. While this is good news, Comptroller Franchot cautions Marylanders not to get too giddy over it.
Despite encouraging early signs of a potential revenue uptick, Maryland has just finished a fiscal year that was “one of the worst performances in recent generations,” Franchot noted in releasing the FY 2010 data.
“While I am obviously pleased that the state has managed to outperform our conservative forecasts, it is important that we put these numbers into their proper context,” said Franchot, pointing out that the economic climate remains “highly volatile, with obvious evidence to suggest that our anticipated recovery has lost momentum.”
The comptroller’s fiscal caution is well-advised.
Next week’s Board of Estimates meeting will give us a clue as to how the state’s financial experts are reading the current mix of fiscal tea leaves on the state and national levels. Keep in mind that the state’s current estimates that were released in March already forecast a 3.6 percent revenue growth in FY 2011 for the general fund.
Whichever way the Board of Estimates adjusts its projection, Maryland’s $1.5 billion deficit forecast will remain very much in play for the next governor and General Assembly.
Through a combination of budget cuts and deployment of federal stimulus funding, state leaders managed to outperform the revised fiscal forecasts for FY 2010. New revenue related to BRAC and other federal employment initiatives and the implementation of a limited number of slots in Maryland offers some prospect of welcome new revenue sources in the coming years.
But whatever our state’s potential revenue prospects, it would not be prudent to count on pre-recession levels of revenue growth anytime soon. Also, some very significant fiscal challenges remain to be addressed, including a major shortfall in funding for transportation infrastructure and growing unfunded liabilities in state retiree pension and health care benefits.
Maryland is not out of the fiscal woods yet. Let’s hope lawmakers go to Annapolis in 2011 recognizing that the best way to the edge of the forest is by developing a clear strategy for our state’s post-recession economic recovery and matching it with a sustainable budget.