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State approaches budget with extra $450 million

State Income TaxBudgets and BudgetingPersonal IncomeExecutive Branch

Maryland will begin the process of planning its next budget with about $450 million more than previously projected — mostly as a result of a rebound in revenue collections.

According to a document obtained by The Baltimore Sun, the Board of Revenue Estimates has found that the state ended the fiscal year on June 30 with $225 million more than previously estimated. The board also projects that the state will close the current fiscal year with another $225 million more than anticipated.

The estimates could be released as early as Thursday by Comptroller Peter Franchot. A spokesman for the comptroller said he would have no comment until the official numbers are final.

The better-than-expected numbers mean Gov. Martin O’Malley could go into the process of balancing the next budget facing fewer painful choices than in any year since the recession hit with full force in late 2008.

“If we head into fiscal year 2014 with a significant balance, that makes putting together the 2014 budget much less challenging,” said Raquel Guillory, O’Malley’s communications director.

The improved fiscal picture is largely the result of increased revenue collections, with the state’s take from the personal income tax, corporate income tax, sales tax and lottery sales coming in higher than the previous projection in March.

The extra $225 million on the books for last year means the state ended up with an unappropriated fund balance of $545 million on top of the money in the Rainy Day Fund.

That balance is roughly the same size as the long-term revenue shortfall — known as the “structural deficit” — that has bedeviled Maryland budget-makers for several years. That deficit had grown to about $2 billion in the depths of the recession, but the administration and lawmakers have been reducing it in recent years through a combination of budget reductions and tax increases.

The General Assembly’s Spending Affordability Committee has set a goal of eliminating that structural shortfall entirely in the budget it will vote on next year. According to the new budget figures, the gap could be as little as $50 million — a relatively tiny amount in an overall state budget of more than $36 billion.

Sen. Ed DeGrange, co-chairman of the committee, believes it will want to stick with that goal. But he welcomed the news of more money that can be carried forward into the next budget.

“This will make the job a little bit easier, but I think we should still be cautious and on the conservative side,” said DeGrange, an Anne Arundel County Democrat.

The fund balance for last year does not include any money from the income tax increase proposed by O’Malley and passed in a modified form by the legislature. Nor does it include any additional gambling revenue that might be generated by legislation passed in the recent special session, which took place after the fiscal year ended.

The current year’s projected fund balance of $425 million, previously estimated at $200 million, includes $18 million in projected licensing fees from the gambling bill, as well as some revenue from the tax package. According to the document, the projections for this year and next could be revised next month by another $100 million each.

The estimate comes as O’Malley’s administration is beginning to craft next year’s budget. Guillory said it was too early to say how the higher-than-expected fund balance would be used, but she signaled that rolling back tax increases was not a likely option.

“We’re going to continue to make the investments necessary to create jobs and in our world-class education system and in innovation,” she said.

Guillory said the better budget picture is a reflection of the “the difficult decisions” O’Malley has made — including budget cuts in previous years.

DeGrange said he agrees with the governor’s priority of creating jobs but believes any new spending should be on one-time projects rather than continuing programs.

Former Sen. Robert Neall, a longtime budget specialist who now serves as a nonvoting public member of the Spending Affordability Committee, said that as a recession gets deeper, it’s not unusual for state budget forecasters to make increasingly conservative projections.

“You hit bottom and then you start to recover,” Neall said. “Now I think you have started to see the economy come around again.”

michael.dresser@baltsun.com

Copyright © 2014, The Baltimore Sun
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