Revenue Board Slightly Reduces Estimates

The Board of Revenue Estimates has revised the official estimate of state revenues downward by $115 million. The $115 consists of $77 million in the current year (1/2 of 1 percent) and $38 million in the upcoming fiscal year 2014 (1/4 of 1 percent). The decrease comes mostly from sales tax proceeds, with smaller reductions attributed to corporation and individual income tax. Even with this revision, revenues would grow 4.9 percent this year and 2.4 percent next year.

Comptroller Peter Franchot, the chair of the Board of Revenue Estimates, attributed the reduction to:

• Reduced consumer expenditures related to the 2 percent increase in federal payroll taxes that took effect January 1 (a part of the “fiscal cliff” provisions that was allowed to take effect).
• The economic ‘de-multiplier’ (my phrase, not Comptroller Franchot's) effects of anticipated federal budget cuts on Maryland’s economy.

This estimate revision arrives just as the legislature is completing its hearings on agency budgets and beginning to make its budget decisions.

In constructing the proposed budget, Governor O’Malley allowed for a cushion of over $1 billion.  He did this precisely because the resolution of the federal government’s budget was uncertain and that federal actions could affect state revenues and programs.

The legislature should not over-react to this modest reduction in revenue growth. The state budget remains balanced through June 2014 with a comfortable margin. Inflicting state budget cuts on top of federal cuts will not help our economy.