Calling the coronavirus emergency “the worst public health crisis and most devastating economic catastrophe of our lifetimes,” Maryland’s top financial official said the virus could cost the state $2.8 billion in lost revenue by the end of the fiscal year on June 30.
That’s about 15% of the general fund gone in a few months, Comptroller Peter Franchot said in a video conference Friday.
The numbers from Andy Schaufele, the director of the Bureau of Revenue Estimates, were compiled under the assumption that stay-at-home orders and business closures ordered by Gov. Larry Hogan stay in effect through the end of the fiscal year.
As bad as the numbers are, Schaufele said the state’s response is “absolutely mitigating the economic downsides of this pandemic.”
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Though stay-at-home orders and closures of businesses have combined to create “the steepest nose-dive in modern history,” Schaufele said, “In their absence, the economic impact would be far greater, and play out over a far longer period of time.”
Unprecedented unemployment
The public health emergency has taken a huge toll on the employment picture in Maryland, Franchot said. The Labor Department has said 108,508 Marylanders filed new unemployment claims last week, compared with 2,090 filings the week of March 6.
He quickly added that that number doesn’t include people whose hours have been reduced, or those who can’t navigate an “overwhelmed” system.
Schaufele said 240,000 Marylanders had filed new unemployment claims in the past three weeks. During the Great Recession in 2008 and 2009, it took 38 weeks for that many Marylanders to file unemployment claims; it took 36 weeks in the “particularly hard” recession of the early 1990s; and in the downturn of the early 2000s, “we never got there.”
And that in turn has walloped tax collections: Schaufele said that tax withholdings will be down about 22% for the rest of the fiscal year, compared with the numbers from fiscal 2018, the last year for which they had complete numbers.
He said that Maryland’s ability to maintain 78% of wages during an almost-complete shutdown of the economy was “tremendous.”
Sales taxes will be down about 59% a month over the rest of the fiscal year, Schaufele said. He added that some of it will be regained through pent-up demand, but not all of it.
He also noted that the main things people are buying nowadays are medicines and food from the grocery store, neither of which are taxed.
Schaufele said relief from the federal government could help matters, but both officials said that such aid would take a long time to materialize — most likely not before the end of the fiscal year — and that federal money so far has gone to direct coronavirus response, not “backfilling” lost revenues.
Both officials said that balancing the budget will take steps that haven’t been seen before.
“The months and years ahead will be tremendously challenging,” Franchot said, adding that “painful but necessary” decisions will have to be made.
“In a very short period of time, we’re losing $2.8 billion … It’s gonna be a whole new universe; it’s not just something we can fold into our expected behavior.”
Franchot was comptroller during the Great Recession in 2008 and 2009, and said that $1 billion of cuts were needed. “That period, as awful as it was, is gonna be like a picnic” compared with what’s going to happen in the wake of the coronavirus, he said.
Better-case scenarios?
Asked about less than worst-case scenarios, Schaufele said that an end to the shutdown of the economy by the end of May would lessen the impact, costing the state about $1.5 billion.
That said, Franchot didn’t mince words: “I know there are some delusional predictions out there that we can get back to normal and switch the economy on like a light bulb. Not gonna happen. People need to understand, need to be told the truth, that this is going to take years. And I hope we’re not going to disagree with the public health experts who, for goodness sakes, are trying to protect our lives. … The last thing we want is a big-bang start to our economy too soon.”
You can watch the entire news conference on Franchot’s Facebook page.
