Budget Picture In Brief: Slow Growth Likely To Stay

At yesterday’s Spending Affordability Briefing to the Spending Affordability Committee, the Department of Legislative Services (DLS) presented a substantial amount of data which as a whole impressed upon the Committee the need to accept the current state of slow economic growth as Maryland’s new reality.

If the State maintains its current revenue structure and spending at current levels of service, it will have a cash shortfall of nearly half a billion dollars in fiscal 2018When projected out to fiscal 2022, the structural shortfall grows to $1.3 billion, with operating spending increasing at 4.9 percent a year, but ongoing revenues increasing at only 3.7 percent annually. In fiscal 2017, the shortfall is projected at $287 million.  Spending increases are split almost equally between ongoing requirements/entitlements and state agency costs, but the single largest driver is increased enrollment in Medicaid.


Maryland General Fund revenues are not increasing as fast as initially projected. Fiscal 2016 General Fund revenues were $16.2 billion, an increase of 1.7 percent over fiscal 2015 – but they were estimated to increase by 3.3 percent. Earlier this fall, the Board of Revenue Estimates (BRE) reduced its earlier revenue estimates by nearly $800 million across the current and upcoming fiscal years.

DLS Executive Director Warren Deschenaux noted that income tax revenues – the General Fund’s largest revenue source – are generated more and more from unearned income such as capital gains, dividends, interest and rent. This makes income tax revenues harder to estimate and generally more volatile. State personal income tax revenues in fiscal 2016 were $8.5 billion, 3 percent lower than the BRE’s March 2016 estimates and only 2.1 percent higher than fiscal 2015. In September, the BRE reduced fiscal 2017 estimates of the state personal income tax by $306.5 million, or 3.3 percent.

While employment in the state is up, wage growth is down: suggesting that Marylanders are getting jobs, but they don’t pay particularly wellUnemployment decreased from 4.8 percent in January 2016 to 4.3 percent in June 2016, with jobs growing most in the construction industry. Employment grew by 1.9 percent from January to June 2016, which is 0.4 percent faster than it grew during the same period the prior year. Wages only grew by 3.5 percent from January to June 2016, however, which is 1.1 percent slower then they grew during the same time period in 2015. State and local government jobs actually decreased at a rate of 0.6 percent from January to June 2016, and wages fell by 0.5 percent.

While state aid to local governments appears to increase significantly, there’s more to the story. In fiscal 2018, state aid to county and municipal governments is projected to increase by 10.0 percent – but that is largely because Prince George’s will begin receiving gaming impact grants when MGM’s casino opens at National Harbor (which also imposes significant costs on the county). Counties and municipalities are budgeted to receive $607.1 million in fiscal 2017, and are projected to receive $60.8 million or 10.0 percent more in fiscal 2018. About half of this increase, or $30.2 million, is attributed to Prince George’s gaming impact grant.

The data-heavy briefing material is available on the Maryland General Assembly’s website.