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Wednesday, August 31, 2016

Comptroller Franchot Releases Year-End Closeout Numbers

Comptroller Urges Fiscal Restraint Citing Continued 
Economic Uncertainty

ANNAPOLIS, Md. – Renewing his call for caution in a tepid economic recovery, Comptroller Peter Franchot released the final closeout numbers for Fiscal Year 2016 today. General Fund revenues totaled $16.2 billion in the fiscal year, 1.5 percent or $250 million below estimate. The unassigned general fund balance is $196.5 million.

The revenue data reflected sustained weakness in wage growth and taxable spending as well as significantly less revenue from collections with tax returns. The net revenue from tax returns with checks and tax returns with refunds decreased 30 percent from fiscal year 2015. The estimate had called for a decline of 1 percent. The downturn likely is due to volatility in non-wage income, particularly capital gains.

“These numbers reflect a continued slow and anemic economic recovery in our state with Marylanders struggling to keep pace,” Comptroller Franchot said. “While a few more Marylanders have jobs, overall wages continue to fail to keep pace with the cost of living for too many families. The figures underscore a vulnerable and uncertain economy and the need to keep to a sensible fiscal course ahead. Consumers and small businesses need predictability as we move forward. I believe that any fund balance must be saved and not spent.”

Withholding growth as it relates to total wages, slowed significantly. While withholding — the state’s single largest revenue source — increased 3.4 percent in fiscal year 2016, an unexpected slow-down in growth in the second quarter resulted in a variance estimated at -1.1 percent. That rate accounts for a negative impact of roughly $93 million to the general fund. With depressed wage growth and general economic uncertainly, consumer spending is affected.

While employment for the fiscal year reportedly increased 1.8 percent, industry factors mask the effects from a mix of high versus lower-paying jobs. There are encouraging signals, notably from the construction industry, but much of the job growth is materializing from industries with below average wages compared to the statewide average. Moreover, low inflation – inflation in 2015 was 0.1 percent — offers little incentive to employers to raise wages to maintain existing standards of living for employees.

Sales tax increased just 2.2 percent from the previous year. Amplifying the weakness is that this was the first full year of collections from Amazon and its subsidiaries, meaning comparable growth was below 2.0 percent. Factors restraining growth include:

• Depressed wages affecting general spending;
• Americans shifting spending to services that generally are non-taxable;
• Americans continuing to turn to the Internet for purchases.

Two other factors are worth noting: As Baby Boomers age, spending patterns shift dramatically. For those 65 and older, incomes are reduced resulting in comparable spending pattern shifts. Another shift affecting retail sales is casino gambling. While casinos topped the $1 billion mark in Fiscal Year 2015 and increased 10.2 percent in Fiscal Year 2016 to $1.14 million, the dollars generated coupled with slow growth in disposable incomes suggests what otherwise would have been available for taxable purchases.

“Clearly, with the challenges we face, it is important to spend taxpayers’ money prudently to ensure the best possible results for our state,” Franchot said. “Maryland is blessed with extraordinary talents, resources and people who can keep a positive focus on our collective economic future. During these challenges, Marylanders’ steadfastness and endurance will keep the focus on better days ahead.”

Read Closeout Report Here


Anonymous said...

It would be good if Mr. Franchot would address the under-funding of the state pensions. The fund is currently only about 67% of what it should be.

How will these current numbers affect that?

lmclain said...

Keep cheering.