By Megan Poinski
Revenues for the fiscal year that just ended are expected to be $300 million above estimates, but Comptroller Peter Franchot strongly recommended Gov. Martin O’Malley and legislative leaders place the money in the state’s rainy day fund to prepare for more tough economic times ahead.
According to the revenues from June – the last month of fiscal 2011 – the state’s personal income tax revenues are up 7.8% from this time during fiscal year 2010. But corporate and sales tax revenues are down – about $40 million below the estimate for corporate tax, and about $30 million under estimates for sales taxes.
Franchot made his plea in a letter to the governor and legislative leaders transmitting the month’s revenue figures.
“In light [of] the economic volatility that is reflected in this report, as well as the sensitive fiscal challenges that continue to confront our state, it is my view that this entire amount of unanticipated revenue should be set aside in the Rainy Day Fund and not spent,” Franchot wrote. “This decision would further protect our state from uncertainty and disruption in the event of unexpected economic developments, and would be wholly compatible with our state’s reputation for sound fiscal stewardship.”
While the final fiscal 2011 numbers are not complete –the final closeout is expected at the end of August – Bureau of Revenue Estimates Director David Roose said that they paint a picture of a fragile economy.
Confirming that, the U.S. Bureau of Labor Statistics on Friday reported that Maryland lost 300 jobs in June — the second month in a row of job losses though much fewer than May — and its unemployment rate ticked up to 7%, though that is 2.2% below the national rate.
Based on data collected so far, Roose said that the drops in corporate and sales taxes mirror the state’s economy. Businesses are slowly recovering from the recession, and Marylanders are spending less and being much more careful consumers.
The increase in individual income taxes appears to mostly come from people being required to pay more on April 15 than they anticipated, as well as people receiving smaller tax refunds, Roose said. It does not necessarily come from more jobs; withholding tax, which is taken from paychecks, is projected to grow less than 1% beyond the estimate.
Roose said it is likely that many people’s incomes probably grew substantially between 2009 and 2010. They started out paying their estimated taxes based on their 2009 income, and had a larger tax bill due in April.
If that is the case, Roose said, the same growth might not continue into the future.
“This is not representing anything we are doing. It is reflecting what is already happening,” Roose said.
Roose said that more information will be available when the Bureau of Revenue Estimates presents its next forecast in September. Between now and then, he said, they will be concentrating on figuring out where the economy is going and making prudent projections.
“It is certainly clear we do not have robust growth at the moment,” he said.
Franchot’s spokesman Joseph Shapiro also said it is important to note that revenue estimates throughout the recession have been extremely conservative, so collections exceeding projections does not necessarily mean the state’s economy has recovered.
Maryland finished fiscal 2010 with $184 million more than estimates. The additional money last year also went into the state’s rainy day fund. Throughout the recession, Maryland has been able to contribute money to the rainy day fund, financial officials said.