Board Bumps Up Revenue Projections $130 Million for FY 20

Panel cautions that small uptick is not indicative of long-term economic growth.

The Board of Revenue Estimates (BRE) today voted unanimously to increase the FY 2020 revenue projections for the State of Maryland by $130 million. The Board also set the first official revenue projections for FY 2021 at $19.1 billion – a 1.9% increase over the current estimate for FY 20 revenues.

The three-member panel, which includes Comptroller Peter Franchot, State Treasurer Nancy Kopp, and Secretary of Budget and Management David Brinkley, is responsible for estimating state revenues to assist with managing the State’s budget.

The panel noted that “while overall revenues are up, that’s largely a projection of a strong tax year in 2018 and not a harbinger of long-term economic growth.”

As previously reported on Conduit Street, Comptroller Peter Franchot last month announced that revenues FY 2019 came in $216.6 million above  BRE projections, bringing the unassigned balance of the State’s General Fund to $351 million, or less than one percent of the total FY 19 operating budget of $44.6 billion.

The final closeout numbers reflect stronger-than-expected revenue growth from capital gains, as well as an increase in Sales and Use Tax (SUT) collections resulting from the 2018 U.S. Supreme Court decision (South Dakota v. Wayfair, Inc.) that allowed states to collect tax from remote online sellers. However, the report also shows weak wage growth and otherwise tepid SUT collections.

According to Comptroller Peter Franchot:

This write-up should not be taken as a stronger performance to come, as much of the increase is attributable to events that have already taken place, including a strong tax year in 2018.

As we discussed with the release of last month’s closeout report, we saw stronger-than-expected capital gains – suggesting a continued reliance on the volatile income of nonwage earners. We also saw an increase in Sales and Use Tax revenues following the Wayfair decision that allowed states to collect sales tax from online remote sellers.

But these numbers are belied by other, more concerning trends, such as the fact that we are again writing down our wage growth estimates.

While we may be experiencing the longest-recorded period of economic growth at 122 consecutive months, the tight labor market is not generating the wage growth that it has in the past.

Our top three industries – the federal government, information, and financial services – have contracted while lower-wage industries are growing. And there is a demographic shift in the workforce, as a generation of older employees retires and younger employees with lower salaries take their place.

This bears weight not only on our income tax revenue, as you would imagine, but it also indirectly impacts sales tax revenue when people simply have less disposable income to spend.

Of course, we’re also faced with more significant economic trends at the national level:

  • The inverted yield curve, which has preceded nearly every recession in modern U.S. history;
  • A ballooning federal deficit; and
  • Not the least of which, reckless and erratic trade policy from Washington.

Each of these in their own right would demonstrate greater market volatility, but together it is impossible to deny that our economy is approaching a very tenuous inflection point, one that we would be foolish to ignore or not prepare for.

That is why I have called on the Governor and the General Assembly to deposit the $216 million fund balance from Fiscal Year 2019 in our Rainy Day Fund.

Stay tuned to Conduit Street for more information.

Useful Links

Previous Conduit Street Coverage: State Revenues Exceed Expectations, But Economic Uncertainty Looms

Board of Revenue Estimates: Maryland General Fund Revenues – Fiscal Years 2019-2021

Comptroller of Maryland: Board of Revenue Estimates Approves $130 Million Increase in Fiscal Year 2020 Projections