Schaufele: General fund revenue loss may not be as bad as was expected


Projected revenue loss from the state’s general fund due to the coronavirus pandemic may not be as severe as was previously anticipated, Maryland’s top economist said Thursday.

“I scored the worst-case scenario for fiscal year twenty [2020] at $2.8 billion. Now we are showing a likely range of between $900 million and $1.1 billion,” Andy Schaufele, director of Maryland’s Bureau of Revenue Estimates, said at a virtual nonvoting meeting on Facebook Live with Comptroller Peter Franchot and the two other members of the Board of Revenue Estimates. The current fiscal year extends through June 30.

“First, obviously the worst-case scenario was just that…we now have data that shows our income tax withholding has been far more resilient than I had expected. We actually had growth in withholding in April. This defies every bit of logic.”

Shaufele noted that previous estimates said withholding could decrease by up to 22 percent “almost immediately.” The income tax accounts for 50 percent of all general-fund revenue and the sales tax accounts for 25 percent, Schaufele said. He offered a few explanations as to why withholding actually increased during April.

“First, we are buffered by a strong government presence…Second, employers did learn a lot during the recession. Cash balances have been high throughout the expansion and borrowing was relatively cheap for those with good credit…Third…big organizations do play a large role in our payroll economy. About 4.5 percent of our entities, including government, account for about 80 percent of our withholding. Fourth, employers tend to care for their employees…employers are likely to examine other cost-cutting measures before examining payroll…Lastly…perhaps the government programs have helped  — the PPP (Paycheck Protection Program) as well as state and local programs ranging from forbearance to grants.”

But Schaufele said withholding is likely to decrease from now through the end of the fiscal year.

“We do expect that withholding will turn negative for the rest of the fiscal year. But the resilience here is nonetheless a very positive surprise.”

Throughout the meeting, Shaufele showed various charts depicting different scenarios for economic loss and recovery. In the more optimistic scenario, the state would face a $925 million shortfall for fiscal 2020, a $2.1 billion gap for fiscal 2021 and a $2.6 billion hole for fiscal 2022. The more dire scenario would result in a $1.1 billion reduction in fiscal 2020, a $2.6 billion deficit in fiscal 2022 and a nearly $4 billion decline in fiscal 2022. One scenario assumed that Congress would pass another stimulus package to provide aid to the states. Shaufele repeatedly emphasized that the projections are merely estimates.

Both projections assume that a vaccine for COVID-19 will exist by the fall of 2021 and that a second wave of the virus does not cause an economic shutdown.

Franchot called the projections an “economic nightmare.”

“What we are looking at is a snapshot of what can only be described as an economic nightmare. And these revenue figures, along with the number of unemployed Marylanders and businesses on the verge of closing their doors permanently, are unprecedented in their scope and magnitude.”

Franchot urged lawmakers to act fiscally responsible during the pandemic.

“I can’t emphasize enough in my opinion that now is the worst possible time under the worst possible circumstances to enter into massive new spending obligations.”

Secretary of Budget and Management David Brinkley later followed-up on that point.

“The governor took a strong first step last week by vetoing new and increased mandates rushed to completion by the legislature…if we are to save the patient,  which is our state…first we have to stop the hemorrhaging.”

Brinkley elaborated.

“There are tough decisions to be made but we have to do exactly what is necessary.”

Treasurer Nancy Kopp cautioned against cutting crucial services to save money.

“I’m very concerned that before we try to solve our immediate problem by cutting necessary services to the citizens of the state of Maryland, we look at all the alternatives. And that certainly does go beyond the sales tax and the income tax — which no one has proposed increasing.”

Kopp also pointed out another expense for the state that will likely need to increase.

“We have to even strengthen our job-training resources because a certain number — but we don’t know what number — of the people now seeking unemployment will not come back, even though the governor has begun to reopen business tomorrow.”