Maryland’s $52 billion budget flush with cash after dire economic warnings don’t materialize

The new spending plan, nearly 12 percent larger than last year’s, builds parks and playgrounds in every county, outfits schools with new ventilation systems, sends cash payments to the poor, gives tax breaks to small businesses and unemployment recipients, and attempts to give broadband access to a half-million residents without it.

“In your wildest dreams, you wouldn’t have expected this a year ago,” Senate Budget and Taxation Chairman Guy Guzzone (D-Howard) said.

As Maryland’s financial fortunes changed, Guzzone said his sleepless nights transitioned from fretting about cuts to figuring out how not to squander unexpected tax revenue, a better-than-expected economy and multiple waves of federal stimulus aid.

“It’s been a weight on those of us who think about this every day, because we want to get it right,” Guzzone said.

House Appropriations Chairwoman Maggie McIntosh (D-Baltimore City), a 29-year veteran of the legislature, reminded her colleagues Friday that the nearly $3 billion in federal aid incorporated into the spending plan this week was the latest in good financial news for the state.

“When you have that kind of money, there’s a tendency to want to spend it all,” she said, pointing out that Maryland instead paid back accounts used for pandemic-related expenses and set aside billions in the state’s rainy day fund. “I can easily say it’s one of the most conservative budgets that I’ve been a part of it.”

Del. Wendell R. Beitzel (Garrett), a Western Maryland Republican who said he never has stood up to praise a budget during his 14-year tenure in the legislature’s minority, urged Republicans to join him in voting for it.

“We were looking at some dire circumstances and things have really turned around,” he said.

The spending plan, which takes effect in July, passed the Senate unanimously and cleared the House of Delegates with bipartisan support. Gov. Larry Hogan (R), who pitched many of the proposals in the budget, praised the state’s financial plan as evidence that people from different parties can work together.

The budget includes tax revenue from new taxes enacted this year, including a tax on digital streaming services such as Netflix and Hulu.

Last May, after the pandemic shut down entire sectors of the economy and unprecedented unemployment claims overwhelmed Maryland’s system, the state’s forecasters predicted “staggering” losses. The rosiest scenario, issued after the first round of stimulus funding, estimated tax revenue would nose dive by more than 10 percent and create a $2 billion crater on the state’s balance sheets. The doomsday version predicted a $7.7 billion shortfall by the end of 2022.

State officials froze jobs and spending. They cut more than $413 million in state spending in July, stripping money from higher education and selling off state aircraft in what was one of the largest single-day budget cuts in state history.

Then it turned out that state revenue forecasters — like those across the country — were wrong.

“I’ve spent a lot of time reflecting on that,” said Andrew M. Schaufele, director of the Bureau of Revenue Estimates.

“That initial estimate in May was kind of a call to arms, and if I knew what I know now, I would have done it differently,” he said. “Honestly, we were victims of short-termism at that point, and I don’t think we had tremendous confidence in the federal government to pull this off. But damn, they did.”

Schaufele said Maryland businesses pivoted to stay open and the state’s consumers kept spending more money than expected. People paid more in taxes than the state guessed, and the economic recovery that followed the spring shutdown accelerated far faster than any typical recession that economists like Schaufele had seen before, he said.

“That injection of the Cares Act stopped what we call contagion, so the impact of the recession did not spread outside of the industries it directly affected,” Schaufele said. “I’ve never seen that in my lifetime. The recessions I’ve seen have always leaked out into the broader economy.”

In addition to the direct federal aid sent to Maryland, Schaufele estimated the cumulative value of expanded unemployment payments, stimulus checks and other federal spending tied to rescue efforts amounts to $50 billion pumped into the state’s economy.

State officials were quick to point out that the government’s healthy balance sheets don’t mirror those of tens of thousands of Maryland families who have endured record unemployment, hunger and job losses concentrated among lower-paying industries.

The state’s $1 billion stimulus package, passed this year and paid for with federal aid, creates the nation’s most generous cash assistance program for the working poor and expands it to include undocumented residents who file taxes without using a Social Security number. Food banks, nonprofits, small businesses and middle- to low-income people on unemployment also received relief.

“We managed to take care of the people who are most vulnerable, who are still suffering in this pandemic, which are many people,” McIntosh said in an interview this week. “We can actually see our way out of this pandemic over the course of not one, but two or three years.”

Other parts of the budget fully fund higher education and an expansion of school revisions that pay for tutors. Budget experts expect the state to post a financial surplus for the next two years.

Hogan spokesman Michael Ricci said in a statement that the budget reflects a willingness to make cuts when necessary and save money where possible.

“Because the state acted early and aggressively, allocated federal relief prudently, and prioritized smartly, our fiscal situation is much improved and a strong economic recovery is on the horizon,” Ricci said.