July 28, 2010

National report on state budgets says Maryland economic recovery on track

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By Megan Poinski

Megan@MarylandReporter.com

A new national report on state budgets highlights Maryland as one of the more promising examples of economic recovery, but like most states, Maryland is still facing big budget gaps as federal stimulus dollars dry up.

Maryland’s revenues are running ahead of projections across the board for fiscal 2010, according to a report released this week by the National Conference of State Legislatures, looking at the budgets in all 50 states. Revenues from personal income tax, corporate income tax, and sales tax are all more than were estimated back when the 2010 budget was drawn up and debated, and the report touts this as a piece of good news.

The good news, however, is misleading. Warren Deschenaux, director of the Legislature’s Office of Policy Analysis, said that back when the FY 2010 budget was being considered, a 5% across-the-board decrease in revenues was projected.

“It looks like we only declined about 3%, so we’re ahead of the estimate,” Deschenaux said. “If you look at the year as a whole, we are still taking in less than the year before.”

While the finances of FY 2010 – which ended June 30 – are getting wrapped up, Deschenaux said there is a bit more to celebrate than the Maryland’s ability to make conservative revenue projections. Compared to the fourth quarter of fiscal 2009 – last April, May and June – income, corporate and sales tax collections increased in fiscal 2010. Just a few percentage points, Deschenaux said, but enough to show a change.

Deschenaux said income tax revenues were probably up because there is some job growth in the state. Additionally, with many businesses trying to do more with less, people who have jobs are more likely working longer hours and getting paid overtime now, meaning an increase in tax withholding.

Sales tax revenues, which are collected as items are purchased, are a better barometer of economic activity. Deschenaux said that these revenues plunged as the economy began to falter, “so I also hope this is indicative of a recovery.”

Deschenaux is cautiously optimistic that the economy will continue to improve, but the road to recovery is rather gradual.

“We’re still digging out,” he said. “We lost about 10% of our revenue compared with (FY) ’08. I’m expecting us to grow 3 to 4% in the next year, but we’re still not going to be back where we were.”

The report also takes a look at each state’s projected budget gaps for the next several fiscal years. According to the report, Maryland is expected to have a $2.4 billion budget gap for fiscal 2011, which just started, $1.8 billion in 2012 and $1.6 billion in 2013. Deschenaux said most of the gap will be the result of federal stimulus funds running out.

However, the state did take some preventive action. In the last General Assembly, several laws were changed to reduce state spending in the long run. Some of these had to do with changing how much the state aided local governments, reducing the “inflation factor” built into education funding, and a new approach to state aid to private colleges.

According to the NCSL report, the recent legislative changes will help close Maryland’s budget gap each year.