Comptroller Franchot: “We Can’t Assume that We’re Around the Corner from Returning to the Way Things Have Been in Maryland”

From the office of the Maryland Comptroller Peter Franchot:

Statement of Comptroller Peter Franchot Regarding Updated Revenue Estimates

The Board of Revenue Estimates met today to write down revenue estimates for Fiscal Years 2015 and 2016 by more than $271 million. Comptroller Peter Franchot, as chairman of the Board, released the following statement:

“We convene today to write down the revenue projections for the State of Maryland for Fiscal Years 2015 and 2016 by more than $271 million, on top of the $405 million write down that occurred in September.

“Far more important than what this means to the drafting of our state budget, or the effect it will have on the upcoming Legislative Session, is what this says about the budgets of Maryland families and small businesses. It’s yet another reminder that we haven’t turned the corner from the worst economic downturn in our lifetimes and that we continue to experience one of the slowest and most anemic economic recoveries that any of us have ever seen.

“Unemployment remains at historic highs by Maryland’s standards and like our unemployment rate, many of the positive economic signs being experienced in the national economy aren’t being felt here in Maryland. Employment growth in the country has grown 1.8% this calendar year, compared to just 0.6% in Maryland. Total wage growth in our state has grown just 1.5% in 2014, while the national rate of growth stands at 4.5%.

“Given these figures, it should come as no surprise that this report contains a reduced outlook for income tax withholding growth, costing nearly $144 million in total for this fiscal year and Fiscal Year 2016. Year-to-date withholdings in the current fiscal year alone fell $54 million below our already low expectations, which has caused us to further temper our projections moving forward.

“Not only does this represent less growth than we had hoped, but it shows that wages – which represent the oxygen middle class families need to survive – are struggling to even keep pace with inflation. The bottom line is that we’re experiencing the downside risk of an economic model that’s predicated on federal spending, rather than a robust private sector.

“Rather than building a diversified state economy, we’ve effectively put all of our eggs in one federal basket, and we’re seeing the immediate and direct economic impact of that approach. We need to accept that this has become our new normal, and it requires a new economic model.

“While the federal government has always been, and certainly remains, a major economic advantage, our over-reliance on the “business of government” carries significant risks. We can embrace our proximity to Washington as a strength without depending on it as our sole basis for economic stability. The fact remains that we’ll only see the economic growth we’re accustomed to when we get the private sector economy growing.

“In our consumer-driven economy, we’ll never build a lasting recovery when consumers don’t feel comfortable enough to spend and businesses lack the confidence to hire, invest and grow. That will only happen if we provide a sense of predictability for Maryland families and small businesses. If we can do that, there is some cause within this report for cautious optimism that we can build from.

“With gas prices down, consumers have been able to keep more of their discretionary income – and we’re seeing that reflected in the sales and use tax figures, which we’re projecting up to about 4.6%, recognizing that this figure includes the impact of Amazon’s physical presence in Maryland. Now that’s not necessarily a return to normal, but it is a clear step in the right direction.

“Whether it’s a temporary indicator or a more prolonged trend is an important question, and although we can’t answer it on our own, as state policymakers, we can help by not doing harm to consumer confidence. That means being smart in how we spend taxpayer dollars, recognizing that to invest in the things we need, we have to forego many of the things we simply want.

“We can’t assume that we’re around the corner from returning to the way things have been in Maryland. We have to be more forward-looking about how we borrow money as a state because we simply can’t sustain our current patterns of debt accumulation without provoking actions that could do further harm to an already fragile economy.

“As we all know, a sustained economic recovery is going to come down to jobs, both here in Maryland and throughout the nation. If we can maintain a cautious mindset and provide a sense of predictability to families and small businesses, Maryland’s economic bones are strong enough and our citizens are resilient enough to withstand this write down and the economic challenges it represents.”