Comptroller Delivers Grim Economic Outlook Amid COVID-19 Crisis

Maryland Comptroller Peter Franchot predicts state revenues will plummet amid COVID-19 pandemic.

down graphThe COVID-19 pandemic will likely have a devastating impact on state and local tax revenues, according to the first official estimate that attempts to quantify the fiscal fallout from the crisis.

Maryland Comptroller Peter Franchot today revealed that Maryland’s general operating revenues are projected to fall by $2.8 billion in the current fiscal year, which ends on June 30.

“The months and years ahead will be incredibly challenging for our state and its citizens, Franchot said. “We’re all going to work together, obviously, we are in close partnership with our local governments.”

As previously reported on Conduit Street, before the crisis, the Board of Revenue Estimates set revenue projections for FY 2021 at $19.1 billion – a 1.9% increase over the previous estimate for fiscal FY 2020 revenues.

Bureau of Revenue Estimates Director Andrew Schaufele today reduced the State’s General Fund revenue forecast for FY 2020 by fifteen percent, by $2.8 billion. The estimates assume that Governor’s stay-at-home order remains in place through the end of June.

“Never have we seen such a torrent of negative economic news hit within three months of the end of the State’s fiscal year,” Schaufele said. “I will be working closely with the local governments to help them understand what this will mean for their [fiscal picture],” Schaufele said.

Some key points from the revenue forecast:

Industries throughout the state have been impacted, some immediately and directly. Hotels and eateries, for example, account for almost eight percent of W2s and two percent of withholding taxes. The State of Maryland should expect to lose 90 percent of that after one full month of staying at home. Approximately 458,000 Marylanders work in the hospitality industry.

The rest of the income tax is adversely impacted as well, with non-wage earners seeing their profits wiped out and gains from investments delayed or taken as losses – those amounts average about $75 million per month.

While consumer spending is reduced, it is also shifting. Maryland, in general, does not tax some of the categories that are seeing an increase in spending such as most food at grocery stores.

The impacts are amplified due to the General Fund’s reliance on revenue sources immediately and directly affected by the pandemic. For example:

  • Withholding taxes, which are affected by lost jobs, reduced hours, furloughs and even a lack of regular turnover, account for 45 percent of the entire general fund.
  • Sales tax, which was immediately affected by Governor Larry Hogan’s emergency orders to close most businesses to protect public health, accounts for 25 percent of the entire general fund.
  • In addition, deep impacts are seen in reduced corporate income taxes and lottery sales, as well as other smaller contributors in loss of funds from items such as court fees.

It should be noted that revenues are only one side of the State’s budget equation. While revenues are expected to decline during an economic downturn, residents’ need for government-supported healthcare and social services is expected to grow due to loss of jobs and health insurance. Furthermore, pension costs are expected to increase because of reduced investment returns.

Counties are making significant financial investments to address immediate public health and safety needs. At the same time, counties are experiencing massive and unprecedented declines in revenue as a result of the economic downturn. The combined effect of these changes will likely undermine county revenue structures and support for education, public safety, roadway maintenance, and other essential services.

Stay tuned to Conduit Street for more information.