While estimates for the financial pain forecast state of Maryland are better than originally predicted, according to figures released Thursday, there are still significant issues ahead as the state seeks to make it through the economic calamity caused by the COVID-19 virus.
During a meeting of the Bureau of Revenue Estimates Thursday, Bureau Director Andrew Schaufele provided two forecasts from Moody’s Analytics, which paint a slightly better picture of the state’s general fund revenues than the worst case scenario provided by Schaufele in April.
According to the two scenarios Schaufele focused on, labeled as S2 and S4, the state is looking at anywhere from a loss of $925 million under the S2 scenario to $1.125 billion under the S4 scenario for fiscal year 2020. For FY2022, those numbers increase to $2.563 billion to $3.951 billion.
In April, Schaufele had presented a worst case scenario that depicted a loss in the general fund of $2.8 billion for FY2020. Schaufele explained that his prediction in April was the worst case scenario and the Moody’s figures are more likely scenarios.
One of the reasons Schaufele gave for the improved scenarios is that the state’s income tax withholding has been far more resilient than anticipated. Schaufele noted that the state actually saw growth in the withholding numbers in April, even as recently unemployed citizens filed jobless claims for the first time.
Schaufele said he believed the figures were better in part due to several factors. He said the state has been helped by the strong government job presence. Also, he noted that employers have learned a lot since the last recession and that cash balances have been high throughout the recent expansion with borrowing being relatively cheap. Schaufele also said that larger employers play a huge role in overall withholding as about 4.5 percent of entities in the state account for 80 percent of withholding. He said he believed it was also because employers care more about their employees and that employees had become less disposable.
He did note however that the job losses are very concerning for the state. He provided charts that outlined the comparison between the current economic crisis and the great recession of 2008-2009. He noted that during the prior downturn 123,000 jobs were lost, while current figures and estimates show losses of between 252,779 and 342,709 in just one quarter of 2020.
“The magnitude (of job losses) is staggering,” he said.
With the job losses the state is expected of course to see significant drops in income tax revenues, although he noted that sales tax also will take a significant hit as less people are buying due to the shutdowns.
Comptroller Peter Franchot noted that even the Moody’s estimates discussed during the meeting assume certain facts which are outside of the control of local officials in Maryland. For instance, the S2 estimate assumes that Congress will provide financial assistance to states and local governments and provide additional stimulus packages. He noted though that he thought that might be overly optimistic due to gridlock in Washington.
He noted that the estimates also assume a vaccine that will be effective and able to be mass produced by the fall of 2021.