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Maryland weathering coronavirus recession on the backs of low-income workers, state economists say

Andrew Schaufele, director of the Maryland Bureau of Revenue Estimates, takes questions following a news conference in 2018.
Andrew Schaufele, director of the Maryland Bureau of Revenue Estimates, takes questions following a news conference in 2018. (Kim Hairston/Baltimore Sun)

As 2020 draws to a close, Maryland’s state government finances have weathered the pandemic-induced recession far better than officials expected, state economic forecasters said Friday, but the lowest-income residents have borne the brunt of the downturn.

Although a second wave of the coronavirus has taken a firm hold and several of Maryland’s largest municipalities have begun instituting restrictions not seen since the first weeks of the pandemic, forecasters Friday projected a partial rebounding of revenue for the state in fiscal year 2022 during a meeting of the Board of Revenue Estimates,

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Republican Gov. Larry Hogan will present his proposed fiscal year 2022 budget early next year. State lawmakers will review the administration’s proposal during the General Assembly session that starts in January.

After the world spent the majority of 2020 in the grips of the COVID-19 pandemic, economic forecasters have their clearest picture yet of the economic impact of the virus, both under tight and more lax restrictions, said Andy Schaufele, director of the Bureau of Revenue Estimates.

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Maryland sales tax revenue has increased over projections for fiscal year 2021, which ends in June, Schaufele reported. That’s due to consumers transferring spending from services, which are generally not taxable and less available during the pandemic, to goods, which are taxable. Lottery revenues were up as well, he said, as was income tax revenue, driven by capital gains.

Other revenues have suffered during the pandemic, however. Courts have been closed for much of the year, providing little money to the state from fees and fines. District court revenue, typically driven by people paying traffic citations, remains down, as well.

While the outlook has improved since September, when the board last met, revenue is still expected to be down by $609 million for the state in fiscal year 2021, Schaufele said. Maryland is now projected to take a $312 million hit in revenue for fiscal year 2022, he said.

At one point, early in the pandemic, forecasters predicted the state could see its revenue drop by billions of dollars compared to past years. But the most dire scenarios have not materialized.

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State forecasters believe revenue losses have been lower than feared because the impact of the recession has been disproportionately felt by Maryland’s lowest-paid residents. Largely employed in food services, arts and entertainment, and recreation sectors, those residents have the highest rates of unemployment during the crisis.

But they also pay less in income tax due to Maryland’s tax structure, minimizing the impact to overall revenues, Schaufele told the group.

The revenue impact has been less than expected, but the social impact of the pandemic has been great, he said.

“While the aggregate picture looks better than we may have thought, it’s important to know that within all these details, it’s rough out there for a lot of individuals and businesses,” he said. “I want to make sure we get that across to policymakers.”

Maryland Comptroller Peter Franchot said he would like to see Congress pass a second round of stimulus funding by the end of the year, a prospect that state economic projections have all but given up on. Absent such action, Franchot, a Democrat, said Maryland should pass its own stimulus plan to provide support for small businesses and help to feed state residents unable to provide for themselves during the recession.

“From a human level, I hope the leadership of the legislature and the governor will reach some bigger, bolder, more expensive ... bridge relief plan for the state of Maryland, given the kind of revenue volatility we are facing,” said Franchot, emphasizing the program should be one-time only.

Treasurer Nancy Kopp, a Democrat, agreed it was the state’s responsibility to step in.

“We dodged a bullet in fiscal year 2020, and it looks like it’s going to be much better than we figured in 2021,” she said. “There are a group of Maryland citizens who are paying for that, and we have to help them, I believe.”

David Brinkley, the governor’s budget secretary, cautioned that the state faces many unknowns. What appears to be a recovery could slow, he said.

“We are all still in uncharted territory when we go through this,” he said. “We could still be in for some unfortunate surprises.”

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