Update: Maryland Governor Larry Hogan says he has a five-point plan to spend the state’s $2.5 billion budget surplus, the first since 1999.

“The entire mission of my administration has been to leave our state in a stronger fiscal position than we found it,” Hogan told reporters at a Thursday press conference. “With this fiscal surplus, we will continue practicing fiscal discipline, while prioritizing relief that continues to advance our economic recovery.”

The five-point plan includes putting roughly $0.5 billion into the state’s rainy day fund. This would increase the fund above the mandated 5% of the state’s $48 billion operating budget to 7.5%. The remaining funds would go toward the other four points of Hogan’s plan, including tax relief for retirees and families “most in need.

The surplus also means additional Supplemental Nutrition Assistance Program [SNAP] benefits for the state’s 800,000 low-income beneficiaries. The federal government approved Maryland’s request for additional emergency allotments of SNAP benefits to be continued through October. On or before Oct. 12 SNAP beneficiaries should receive additional funds automatically loaded onto their electronic benefits transfer cards. The emergency assistance is temporary; families will see standard benefits the following month unless the state reapplies for additional emergency assistance from the federal government for each month through the end of the year.

The fifth point of the plan would provide additional compensation for state employees, but Hogan said he couldn’t get into the details on what his administration is negotiating with public employee unions as fall collective bargaining is getting underway.

Original:

Maryland closed out its fiscal year with a $2.5 billion budget surplus following an injection of federal aid during the pandemic.

State Comptroller Peter Franchot announced the excess funds Wednesday, mostly crediting that balance to the federal government stimulus, which included the three rounds of stimulus checks, the advanced child tax credit payments, the extended unemployment benefits, the paycheck protection program for businesses, and other funds. Those programs did what they were supposed to, Franchot said — they stimulated the economy.

“The unprecedented federal fiscal stimulus coupled with state measures, in response to the COVID-19 pandemic, had a far greater positive impact on State tax revenues than initially anticipated,” Andrew Schaufele, director of the state’s Bureau of Revenue Estimates, wrote to lawmakers in an end-of-fiscal-year report.

Schaufele added that he predicts the state will be able to sustain this revenue in the short-term, and perhaps longer, but warned lawmakers that because the pandemic isn’t over, the state’s financial landscape could change.

Maryland isn’t the only state seeing a surplus in its budget. Across the region, Virginia also saw $2.6 billion in excess funds, the largest in the state’s history. Last month, Gov. Ralph Northam attributed the extra funds to better than expected revenue growth, cautious spending strategies during the pandemic, and the federal stimulus.

The District’s fiscal year ends Thursday, and the District’s Chief Financial Officer Fitzroy Lee predicted a $125 million surplus as of mid-May.

Much like Northam, Maryland Gov. Larry Hogan lauded the stimulus in a statement Wednesday, saying it was “one of the biggest economic turnarounds in America.”

“As we move forward, we will continue to practice fiscal discipline while prioritizing relief that advances our recovery,” Hogan added.

Maryland’s surplus is more than 5% of the state’s $48 billion operating budget. The $2.5 billion will rollover into the 2022 fiscal year budget and give Maryland lawmakers breathing room for future budget negotiations.

Lucy Dadayan, a senior research associate with the Tax Policy Center at the Urban Institute, told DCist/WAMU that another reason for the massive surpluses in Maryland and other states was because revenue forecasters were very conservative in their projections and didn’t account for the fact that it was mostly low-income workers who lost their jobs.

“The fact [is] that a lot of people who have lost their jobs due to the pandemic were, unfortunately, low-income taxpayers, [and] they were not contributing to the tax system as much,” Dadayan said. She points out that in Maryland and many other states the tax structure is progressive, so the higher the income, the more taxes you pay.

Dadayan says another reason for the surplus is because most people were at home more; they started spending more on goods like Amazon packages, rather than on services like car mechanics. Maryland and other states collect taxes from the items you buy online, which also contributes to revenue.

Franchot said Wednesday that the revenue figures show “a tale of two Marylands.”

“In one Maryland, there are hundreds of thousands of residents facing dire circumstances,” Franchot wrote in a press release. “In the other Maryland, which is about two-thirds of our population, workers are able to do their jobs remotely and run businesses that not only carried on throughout the pandemic, but in fact, did very well.”

Many low-income workers are still out of work in Maryland, and the unemployment rate remains higher than pre-pandemic norms. As of the end of August, Maryland’s unemployment rate was roughly 5.9%, Virginia’s was 4.2%, and the District’s was 6.5%.

Now, the question remains: How should jurisdictions in our region use their excess funds?
Dadayan and some revenue forecasters believe that cautious optimism is key since the pandemic still has a hold on the nation’s economy.

“COVID is still not over,” Dadayan said.