State sales tax receipts drop, worrying officials

The Baltimore Sun

An unusual drop in sales tax receipts last month and weakness in other revenues could significantly complicate the already large budget problems state lawmakers face next year, Comptroller Peter Franchot said yesterday.

Tax revenues declined by about $20 million last month compared with March 2006 - a drop of about 2 percent, largely because of a 3 percent drop in sales tax receipts. In a letter to Gov. Martin O'Malley and leaders in the General Assembly, Franchot said there is reason to fear the tax numbers could become a trend.

"The sales tax decline is a major concern because it is the first time in four years it's declined in any month. It could be an indicator of stormy weather ahead," Franchot said. "Everybody hopes it won't be repeated, but if it is next month, it could indicate a softening of the whole economy."

The "structural deficit" Maryland faces is an expected gap of up to $1.5 billion between state spending and revenue for the fiscal year that starts July 1, 2008. Lawmakers have been fretting for months over how to solve that problem, but the latest numbers add pressure to deadlocked budget negotiations between the House and Senate.

Warren Deschenaux, the General Assembly's chief fiscal analyst, said the new numbers mean the legislature will need to leave between $30 million and $50 million in cash in the state's accounts to provide a cushion.

It was unclear last night whether negotiators would resume discussions today or put them off until as late as Monday.

Sen. Ulysses Currie, a Prince George's County Democrat who chairs the Budget and Taxation Committee, said he expects legislators will react immediately to the new numbers.

David Roose, the head of the state's Bureau of Revenue Estimates, said what is particularly troubling about a drop in the sales tax is that it usually only happens during recessions.


"It could be a one-time thing that happened for reasons we don't understand at the moment, or it could be the start of something else," Roose said.

"This is not a good sign," Franchot said.

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