Federal shutdown bad news for Maryland

For the first time in 17 years, much of the federal government has shut down. This is bad news for Maryland and the nation's economy and for the public that benefits from a wide array of public services.

The parts of the federal government that haven't shut down are either "essential" (mostly activities that protect life and property); are funded outside of the appropriations process (like Medicare and Social Security); or have other funds available, at least for a little while (for example, Medicaid has enough money for the next quarter, and housing vouchers will be unaffected in October).

But lots of other important programs will be affected, including many that help our most vulnerable neighbors. For example:

• Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) is not funded for FY 2014. States do have a few funding streams they can use to temporarily cover the loss, but they won't last long.
• Temporary Assistance to Needy Families (TANF) has now expired. States should have already appropriated the matching funds required for the program, and could potentially use these funds to maintain the program until a new appropriation or continuing resolution is passed.
• Child care funding is in the same situation as TANF.

If you want to learn more about a specific program, check out the contingency plans by federal agency.

Here are a few estimates of what the shutdown will cost Maryland:

• Furloughs could cost Maryland $5 million a day in income and sales tax collections and perhaps $15 million a day in overall economic activity, according to the governor's office.
• Dr. Daraius Irani, executive director of the Regional Economic Studies Institute at Towson University estimates that a partial government closure could mean between $18 million and $68 million a day in lost income for Maryland workers, and between $700,000 and $2.5 million a day in lost income tax collections. His analysis does not include lower tax collections from furloughed workers cutting back on their spending.
• Dr. Stephen Fuller, director of the Center for Regional Analysis at George Mason University, estimates the DC region (not just Maryland) could see losses up to $200 million a day. Dr. Fuller's analysis excludes tourism and cuts to direct services such as new Medicare or Social Security applications, small business loans, and child-care subsidies.
• The Baltimore Sun also has a slideshow illustrating the shutdown's effects on Maryland.

In other more positive news, the Maryland Health Connection opens at noon today. Part of the Affordable Care Act (ACA), this exchange allows individuals and small businesses to shop for health insurance, including using tax credits if they qualify. Implementation of the ACA is unaffected by the shutdown.

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.

Revenue exceeds estimates

Today Maryland Comptroller Peter Franchot announced that revenues for state fiscal year 2012 - which ended June 30 - exceeded the official estimates by $230 million.


This is moderately good news for several reasons:

1. It demonstrates that the economic recovery - weak as it is - is beginning to improve household and corporate income.
2. It reduces the state's revenue shortfall for the upcoming year. 

The Comptroller issued a statement that emphasizes that the economy remains precarious and the recovery is adding jobs and revenue much more slowly than we would like. He is right. Still, the good revenue news suggests a glimmer of light at the end of the tunnel.

There are still two big risks to the economy (and therefore to Maryland's budget). Congress might enact abrupt federal budget cuts, which could send the national economy into a new recession. Or the European economy could deteriorate to the extent that the US economy suffers.

On the plus side, Maryland's state budget is balanced through June 2013. $672 million remains in the state's "Rainy Day" reserve fund. The three bond rating agencies have again upheld Maryland's exceptional Triple-A credit rating.

The budget will remain difficult, but as a result of the state's balanced approach to managing the budget and some level of economic recovery, there is hope for the future.

We will publish MBTPI's complete analysis of the fiscal year close-out shortly.