Unexpected Revenue Could Ease Md. Deficit
By Matthew Mosk
Washington Post Staff Writer
Wednesday, May 19, 2004; Page B01
Maryland's much-dreaded budget crisis may be quietly evaporating, new revenue estimates show.
Money from Maryland's income and sales taxes has been flowing into the state treasury at a healthy clip this year, exceeding by more than $150 million the amount that fiscal experts had predicted. And if the revenue continues at that pace, predictions of a $1 billion shortfall facing the governor and General Assembly in January could be revised down to a far-more-manageable gap of roughly $252 million.
"Good news at last," is how Warren G. Deschenaux, the General Assembly's budget director, described the latest numbers.
"To the extent this level of [tax] collections continues, the budget shortfall forecasted for fiscal 2006 will be substantially reduced," Deschenaux wrote in a letter to legislative leaders.
Maryland Treasurer Nancy K. Kopp (D) said the news is especially welcome because the figures show that revenue for the first nine months of this fiscal year has outpaced estimates that were already based on anticipated economic growth.
Top lawmakers said the improving economic outlook could help simplify matters next year, when they will try to work out how to pay for such costly statewide initiatives as the $1.3 billion Thornton education funding plan.
"It's very positive for everybody that has to work with the budget," said Del. Norman H. Conway (D-Wicomico), chairman of the House Appropriations Committee. "When you start crunching the numbers and they have reduced to that degree, everything becomes much more manageable."
Last month, the General Assembly ended its annual session in a stalemate with Gov. Robert L. Ehrlich Jr. (R) over whether to resolve a chronic budget gap by raising taxes or legalizing slot machine gambling. Unable to agree, lawmakers approved a spending plan that relied heavily on one-time accounting maneuvers, increased fees and cuts to local governments. Many left Annapolis grumbling that they would return in January to an even larger budget hole.
Maryland Budget Secretary Chip DiPaula Jr. said yesterday that while the most recent numbers are encouraging, they are largely the result of a significant upswing in the past two months. "This is positive news, but these are preliminary projections," DiPaula said. "It's really far too early to determine the extent of the relief this will provide us in 2006."
Likewise, legislators and fiscal analysts said they are not convinced that the improving revenue means an end to the structural budget problems Maryland faces. While some of the state's financial troubles may have been a direct result of a downturn in the economy, they said, the state still must resolve the fiscal burden created by the Thornton education spending plan and the 10 percent cut to state income taxes that occurred under then-Gov. Parris N. Glendening (D).
Senate President Thomas V. Mike Miller Jr. (D-Calvert) said he believes one key step toward fixing that imbalance would be the legalization of slot machines. "It's not the whole answer, but it's a major part of the answer," Miller said.
Miller noted that under the latest projections, Maryland would still face a $965 million deficit in fiscal 2007. He said the Senate's plan for slot machines would produce an estimated $802 million in new revenue that year. "They really would just cancel each other out," he said.
But opponents of slots said an improving economic outlook could eliminate the need for additional gambling revenue. Montgomery County Executive Douglas M. Duncan (D) called this "a good opportunity to step back and reassess whether we need to be talking about gambling at all."
Statewide, the most significant gains were in personal income and sales tax revenue, which represent the largest chunk of income for the state, Kopp said. Budget officials had projected a 6 percent increase in income tax revenue, and the trend this year is now closer to 9 percent. Similarly, sales tax revenue, which had been expected to increase by 6.2 percent, is now up 8.1 percent.
Other sources of revenue, such as state taxes on estates and inheritances, on insurance premiums, and on liquor, gas and cigarettes, are all outpacing expectations.
Staff writer Tim Craig contributed to this report.
© 2004 The Washington Post Company