Board of Revenue Estimates approves a $478 million revenue write-down during the current and next fiscal year.
In the final meeting for two of its three members, the Maryland Board of Revenue Estimates voted today to lower state revenue projections for fiscal 2023 by $77.4 million. The Board, which consists of Comptroller Brooke Lierman, Treasurer Dereck Davis, and Budget Secretary Helene Grady, also lowered revenue projections for fiscal 2024 by $400.3 million.
Maryland Revenues and Economy Slowed Faster Than Anticipated
Year-to-date revenue, which was performing as expected, has slowed in the last few months and, in total, is now below the December forecast.
The March forecast includes greater decreases in nonwage income. Estimated payments, which were increasing, sharply declined for the 4th quarter of the tax year 2022. The March forecast adjusts downward sales and use tax and withholding revenue due to recent under-attainment. Corporate income tax revenue and interest income revenue are above expectations, partially offsetting the decrease in the personal income tax and sales and use tax forecast.
Non-wage income and capital gains remain at very high levels. Almost 1 out of every 5 dollars in the State’s general fund comes from nonwage income, which has proven to be a volatile revenue stream. However, an economic downturn could cause these revenue streams to decrease as interest rates climb and the stock market wobbles.
The Maryland economy appears to be underperforming compared to the national economy in terms of employment and consumer spending, which explains the decreased sales and use tax and withholding income tax forecasts.
According to Comptroller Brooke Lierman:
The revenue forecasts should not be considered alarming, but they should be seen as a flashing yellow light — a warning that the economy of Maryland is seeing the lingering effects of national inflation, with a disproportionate impact being felt by our families making low to moderate incomes. Maryland is not alone in this trend. In our region, both Virginia and New Jersey are also seeing greater-than-expected revenue slowdowns.
The Maryland economy appears to be underperforming compared to the national economy in terms of employment and consumer spending, which explains the decreased sales and use tax and withholding income tax forecasts. On top of that, we have an aging population larger than the national average, ongoing competition for high-wage jobs with our neighboring states, and state coffers that are very dependent on nonwage income tax from the top 1% of tax filers. Almost 1 out of every 5 dollars in our general fund comes from nonwage income, which has proven to be a volatile revenue stream over the years.
This trend is indicative of larger underlying challenges facing our state’s revenue structure and economy. We are experiencing a new baseline or walking speed for our economy that we have yet to fully define.
Moving forward, my office will take a proactive approach to study and better understand the structural changes in our economy and revenue base and the risks, challenges, and opportunities we have. Doing this work is essential to ensure that Maryland’s stakeholders — our business leaders, policymakers, economists, and taxpayers — have access to the data required to make the best possible decisions in a shifting economic environment.
Stay tuned to Conduit Street for more information.