Healthy Revenue Forecast Is an Opportunity to Strengthen Maryland Communities

The Board of Revenue Estimates’ September update showed continuing fiscal strength alongside economic uncertainty. Our healthy revenue outlook and substantial stockpile of cash offer an opportunity to strengthen support for the things Maryland communities need to thrive. At the same time, policymakers should ensure we are able to make a long-term commitment to Maryland families by cleaning up our tax code and asking more of the wealthy few.

The Board of Revenue Estimates revised expected general fund revenues for the state’s current budget year (July 2022 to June 2023) upward by $1.2 billion, a more than 5% increase above the previous estimate. This comes on the heels of final data on last year’s budget showing general fund revenues $1.6 billion above expectations, with a $1.1 billion unassigned surplus (cash not set aside for continuing spending or put toward savings).

While the board’s core predictions were strongly positive, state analysts highlighted medium-term economic risks that could slow revenue growth:

• While President Biden’s 2021 American Rescue Plan provided a major economic boost – which meant more consumer spending, higher incomes, and stronger tax revenues – the law’s effects are now receding. This means policymakers should not expect the recent trend of explosive revenue growth to continue.
• High inflation contributed to robust revenue growth, because higher prices raise consumer spending in dollar terms and tend to increase wage growth. However, this also drives up the cost of providing public services, partially offsetting the recent revenue influx. Analysts emphasized that so far revenue growth has significantly outpaced price increases.
• Officials at the Federal Reserve have responded to high inflation with aggressive interest rate increases and signaled that they plan to continue this approach. These actions dampen economic growth, potentially triggering a recession and causing a loss of jobs. This would mean lower revenues as well as higher borrowing costs.

Policymakers should take two lessons from the Board’s updated projections:

1. We should use the state’s significant resources to invest in Maryland communities:

• Hundreds of thousands of Marylanders still struggle to meet basic needs such as keeping a roof over their head and putting food on the table. Structural barriers built into our economy disproportionately push these burdens onto Black and Brown Marylanders.
• We should leverage Maryland’s current fiscal strength to build economic security and opportunity for all through reforms such as expanding our state child tax credit, improving our unemployment insurance system, and strengthening access to affordable housing and medical care.
• We should rebuild our workforce of public servants, which has been hollowed out over the last decade. State analysts have repeatedly highlighted that understaffing and high vacancies are straining state agencies’ ability to do their jobs effectively. We should reinstate positions that policymakers have abolished in recent budgets, focus on filling vacant roles, and continue to strengthen pay for public servants in order to attract and retain qualified workers.

2. We should protect ourselves from a possible downturn by improving Maryland’s tax code:

• State analysts expect slower revenue growth in the next few years, largely because of the receding boost from federal stimulus and anti-growth monetary policy choices.
• Policymakers should close loopholes that allow wealthy corporations to dodge their tax responsibilities. Maryland is behind the ball on common-sense reforms that the majority of states have already adopted.
• We should ask more of the wealthy few who have gained the most from recent economic growth. We should especially focus on the small number of wealthy, overwhelmingly white individuals who derive more income from the assets they own than the work they do.