Comptroller Brooke Lierman announced that the State of Maryland closed its books on fiscal 2023 with an unassigned general fund balance of $555 million.
According to the Closeout Report, Maryland closes fiscal 2023 with a general fund balance of $2.584 billion. Of this amount, the General Assembly allocated $2.392 billion for fiscal 2024 operations. Previous estimates made in March by the Board of Revenue Estimates were within 2/10th of a percent of the Closeout Report.
“The Closeout Report closely follows revenue forecasts made in March by the Board of Revenue Estimates, signaling that Maryland’s economy remains stable but is experiencing some challenges, including the effects of national inflation, with a disproportionate impact being felt by our families making low- to moderate-incomes,” Comptroller Lierman said.
“Overall, the labor market has been resilient, as withholding income tax revenues increased by more than 5 percent in the fiscal year,” said Director of the Bureau of Revenue Estimates, Robert Rehrmann. “Maryland’s economic growth slowed, but remained positive, as the Federal Reserve raised interest rates to reduce inflation. Sales tax revenue growth slowed, showing that many low- and moderate-income Marylanders needed to use the savings they had accumulated during the pandemic to offset the rising prices for necessities.”
In the fiscal 2022 Closeout Report, Maryland reported a $2 billion unassigned fund balance, and in the fiscal 2021 Closeout Report, Maryland had a $2.5 billion unassigned fund balance. Both years’ balances reflect federal stimulus funding that significantly increased personal and business income and expanded consumer spending. In fiscal 2020, Maryland reported a $585.8 million unassigned fund balance.
According to a statement from Comptroller Lierman:
The Closeout Report reflects the challenges families and small business owners have faced. Although there are signs that inflation is slowing, many families and small businesses are still adjusting to the economic impact of COVID and rising costs – from rent, mortgages, to financing the purchase of a new vehicle. These factors highlight the need for more research into the ‘new normal’ that we find ourselves in post-pandemic.
In response to this slowdown, earlier this yea,r the Comptroller’s Office embarked on an effort to more fully understand the structural changes in our economy and revenue base and the associated risks, challenges, and opportunities. The agency’s Policy Division partnered with its Bureau of Revenue Estimates and held a series of roundtables and interviews over the summer with local business, industry, and economic development leaders throughout the state to learn what they, their members, and their communities are experiencing on the front line of the state’s economy and what they need to grow, prosper, and succeed. This qualitative and quantitative data will be compiled into a report that the agency will issue this fall.
“In the next month, my office will release a report on the state of Maryland’ economy to help policymakers, leaders, and our partners in government better understand the structural changes in Maryland’s economy, the revenue base, and the risks, challenges, and opportunities we have,” Comptroller Lierman said. “The findings of this report will help to ensure that stakeholders have access to data to make the best possible decisions in a shifting economic environment.”
After Years of Surpluses, State Budget Deficits Loom Large
A report from the Maryland Department of Legislative Services warns of looming structural deficits over the next four years, a stark change from last January, when DLS projected billions in structural surpluses between fiscal 2023 and fiscal 2028.
Fiscal 2024 is projected to end with a fund balance of $367 million, and ongoing revenues exceed ongoing spending by $150 million. A $418 million structural deficit is anticipated for fiscal 2025. Structural challenges prevail for the remainder of the forecast period, culminating in a $1.8 billion deficit in fiscal 2028.
The cash and structural budget outlook deteriorates substantially in fiscal 2028 due to the costs of ongoing K-12 education enhancements outpacing the availability of special funds in the Blueprint Fund. The Blueprint Fund is expected to close fiscal 2024 with a fund balance approaching $2.9 billion.
The Blueprint for Maryland’s Future Fund — which is dedicated to implementing the recommendations from the Kirwan Commission on Innovation and Excellence in Education — has a dedicated funding source from a portion of online sales tax revenue and will have enough money to fund the Kirwan Blueprint bill through at least 2027, according to DLS.
This fund balance, coupled with annual Blueprint revenues of about $1.4 billion, is sufficient to maintain current Blueprint support for K-12 education and fund most of the increases in K-12 costs for fiscal 2025 through 2027. By the end of fiscal 2027, the Blueprint Fund surplus is exhausted, resulting in substantial K-12 costs shifting to the general fund in fiscal 2028.
Legislation passed during the 2023 session decreases revenues by $884 million and increases spending by $500 million for the five years ending with fiscal 2028. Between fiscal 2024 and 2028, ongoing revenues, projected to grow at an average annual rate of 3.3 percent, are outpaced by the increase in continued spending, which grows at an average annual rate of 5.1 percent.
Cash shortfalls projected for fiscal 2026 and 2027 can be addressed by shifting planned PAYGO capital to bonds, making modest reductions to planned operating spending, or drawing the Rainy Day Fund below 5 percent of general fund revenues. The fiscal 2028 cash shortfall far exceeds the remaining cash in the Rainy Day Fund, necessitating significant spending reductions or increased revenues.
The Maryland Board of Revenue Estimates, which includes Comptroller Brooke Lierman, State Treasurer Dereck Davis, and Secretary of Budget and Management Helene Grady, will meet on September 28 to vote on revised general fund revenue estimates for fiscal years 2024 and 2025.
The forecasts for the current fiscal year and the one that begins in July 2024 will provide budget writers and policymakers with the latest revenue projections and economic trends, which provide a foundation for crafting the budget.
Stay tuned to Conduit Street for more information.