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Despite sales tax dip due to pandemic, Maryland ends budget year in better financial position than predicted

State officials finished tallying up the end-of-year budget numbers, and while the state's tax revenues came in less than planned for, the financial picture is not as dire as was predicted earlier in the coronavirus pandemic.
State officials finished tallying up the end-of-year budget numbers, and while the state's tax revenues came in less than planned for, the financial picture is not as dire as was predicted earlier in the coronavirus pandemic. (Paul W. Gillespie/Capital Gazette)

Despite the job losses and business restrictions due to the coronavirus pandemic, Maryland’s state government finished its most recent budget year in the black.

The state announced Wednesday that for the budget year ended June 30, it took in less money in taxes than it had planned on before the pandemic. But the tax revenue still came in above the amount collected the year before.

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Back in May, state officials predicted a dire scenario due to the pandemic, with the state potentially losing about $1 billion in revenue in fiscal 2020 alone, as people lost work and cut their spending.

In the end, the money coming into the state’s general fund dropped only about $102.2 million, or half a percent, from pre-pandemic estimates.

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Ultimately, the state’s general fund took in $18.6 billion total, primarily from personal income taxes, corporate taxes and sales taxes. That’s 2.4% more than the year before.

The general fund ended the year with a balance of $585.8 million.

Comptroller Peter Franchot, a Democrat, said he thinks the $586 million should be used for a “stimulus and rescue program” for small businesses. He believes Republican Gov. Larry Hogan’s administration could create a program, given the ongoing state of emergency.

“This is a temporary piece of positive news and it gives us the opportunity to do something good,” Franchot said.

Franchot previously suggested tapping the state’s Rainy Day Fund to help businesses, but now said the balance in the general fund could be used instead.

The largest union for state employees said the revenue report backs up its argument that the state does not need to cut jobs or salaries to keep the budget balanced during the pandemic.

“We have said from the beginning that the governor needed to be prudent and not just wildly cut state services and those who deliver them,” the Maryland Council 3 of the American Federation of State, County and Municipal Employees said in a statement. “This report validates our position.”

The state made $413 million worth of cuts to the budget for the current budget year, which started July 1, through actions the state Board of Public Works took this summer. The three-member panel, which includes Hogan and Franchot, has the authority to cut the budget when the state legislature is not in session.

Hogan’s administration is eyeing further options for reining in spending and negotiated with state employee unions this summer about potential cuts. But the administration has not proposed further cost-cutting measures to the board.

Mike Ricci, a Hogan spokesman, said the report reflects the state’s “early and aggressive fiscal actions,” as well as an early influx of federal aid.

“However, Maryland still faces a massive budget hole for fiscal year 2021, and well into the future,” Ricci said. “With all the uncertainty surrounding the economy and Congress, this is no time to take any actions off the table or rush to empty our Rainy Day Fund."

Hogan has lobbied Congress to send $500 billion more to state governments to help shore up state budgets. But Congress has not acted on an additional aid since it passed the CARES Act in the spring.

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Franchot said it’s crucial that Congress pass additional financial aid, otherwise the dire predictions for state finances are more likely to come to pass.

“The problem is, this is simply a stopgap,” Franchot said. “There is no guarantee that there will be a second stimulus. There is no guarantee that the virus won’t reemerge.”

The state’s financial situation was likely helped by other factors, including expanded unemployment benefits, stimulus checks the federal government sent to residents, and loans and grants awarded to businesses, according to David Farkas, acting director of the state’s Bureau of Revenue Estimates, which tracks the money coming into the state’s coffers.

The state also is collecting sales tax from more online companies and sellers as a result of court decisions and new laws — with much of that money dedicated to public education.

A pandemic-fueled increase in online spending helped offset a decline in other spending by consumers. Still, sales tax collection overall was 6.4% less than expected and down 3.7% from last year.

Also, most of the state’s fiscal year happened before the pandemic arrived in Maryland in March.

Farkas warned in a report that it’s unknown how the pandemic will continue to affect the economy.

“The economic outlook remains highly uncertain; it depends ultimately on the course of the pandemic…," he wrote. “In general, the worse the pandemic gets, the worse the economic situation will be and the longer the recovery.”

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