The Main Point
The Maryland Bureau of Revenue Estimates is predicting that Maryland general revenues will INCREASE by almost $1 billion ($927 million) for FY09 vs. FY08.
In other words, Maryland government forecasts indicatethat Maryland tax revenues will continue to INCREASE NOT DECREASE. FY08 revenues are predicted to be larger than FY07 when the fiscal year ends June 30. FY09 revenues are forecasted to be larger that FY09.
In a nutshell, Maryland tax revenues are NOT expected to contract in FY09 even after taking into account disappointing sales tax collections in January and February of this year. In fact, the state Bureau of Revenue Estimates (part of the Comptroller's office) is forecasting a 6.8 % increase, which most would consider a very healthy increase.
What is Happening with Maryland Revenues?
In its most recent revenue estimate in March, the Board of Revenue Estimates scaled back its estimates for both FY08 and FY09 from its last estimate in December. The result was that the 5.5% and 8.7% FORECASTED increases for FY08 and FY09 were scaled back to 4.8% and 6.8% FORECASTED increases.
This required that the governor reduce what he was asking the legislature to spend. The governor's budget assumed that $1.094 billion was available to increase spending over FY08. The new estimates trim this INCREASE to $927 million, a reduction of $167 million in the INCREASE.
It is hard to scream on the internet but we'll try. The sky is not falling. Maryland revenues are not predicted by the Board of Revenue Estimates to fall, not for FY08 vs. FY07 or for FY09 vs. FY08.
How much money is this?
Let's put this in perspective. The Board of Revenue Estimates is predicting that the state will take in $617 million more in FY08 compared to FY07 and $927 million more in FY09 compared to predicted FY08 revenues. Is this a crisis? That is almost $1 billion more than FY08 predicted tax collections of $13.6 billion.
In case there is any doubt, most of this increase will probably be spent but we will monitor the final appropriations to see what happens.
January and February - Tax Collections
January sales tax collections for December retail sales declined 5.5% in comparison to January of FY07 indicating a fall in Maryland retail sales. While collections in February for January retail sales were up 16.6%, retail sales are down if one removes the rate increase. That is, multiply the February sales tax revenues by 5/6 (ratio of old tax to new tax). The result indicates a 2.8% decrease in retail sales. However, REAL SALES TAX collections were up in February so the sales tax increase seems to have offset any reduction in retail sales.
Some will say that the declines in retail sales are a reaction on the part of the citizens to the sales tax increase. There is not enough information to distinguish between an economic downturn caused by factors unrelated to the tax increase and the tax increase.
We plan to find information about this and comment on it in the future.
