ANNAPOLIS, Md., Dec. 14, 2023 — Maryland’s fiscal outlook for the coming year appears cautiously optimistic, as state revenue projections for Fiscal Year (FY) 2024 have been increased to $24.644 billion, marking an upward revision of $78.3 million. However, projections for FY 2025 suggest a more conservative stance, with the Maryland Board of Revenue Estimates revising the general forecast to $24.919 billion, a decrease of $162.6 million.
The Board, in its final meeting of the year, noted that General Fund revenue is expected to grow by 4.1% in FY 2024 and by a modest 1.1% in FY 2025. This tempered forecast for FY 2025 is attributed to a slowdown in consumer spending, which impacts sales and use taxes and contributes to a decline in lottery revenues.
Key to these adjustments are two one-time factors: a surge in interest income and robust state investment returns. These have somewhat offset the impact of slower consumer spending. For FY 2024, excluding extraordinary revenues, the revised general fund forecast is $24.614 billion, down by $71.7 million. Ongoing general fund revenues for FY 2025 are projected at $25.059 billion, a downward revision of $162.6 million. These revenues are forecast to grow by 0.6% in FY 2024 and 1.8% in FY 2025.
Comptroller Brooke E. Lierman, chair of the Board, emphasized the need for caution. Fluctuations in stocks and interest rates could affect capital gains and investment income, essential components of the state’s fiscal health. “The FY 2025 write-down is largely driven by reductions in the sales tax from decreased consumer demand,” Lierman stated. She pointed out that this trend seems to be a post-pandemic behavior, with consumers having spent their pandemic savings or stimulus funds and now looking to spend less and rebuild savings.
Lierman also highlighted the potential impact on Maryland’s small businesses, which often operate on tight margins and are particularly vulnerable to decreases in consumer spending. “It is important to note that decreased consumer demand especially hits Maryland’s small businesses,” she said, encouraging support for these businesses.
The Board’s report included notable one-time adjustments in the forecast. Interest income for the state is expected to be around $300 million, significantly higher than the typical annual $30 million. Additionally, the state’s investment portfolio, benefiting from rising interest rates, contributes positively to these forecasts. An extraordinary income of $150 million will also be moved from the Local Income Tax Reserves Fund back into the General Fund.
The Bureau of Revenue Estimates, which serves as the economic staff for the Comptroller and the Board, plays a crucial role in forecasting and analyzing state and national economies, monitoring state revenues, and assessing the impact of tax legislation. The Bureau’s insights are vital for maintaining the state’s fiscal stability and are regularly shared with bond rating agencies and other stakeholders.
For more detailed information on Maryland’s fiscal forecasts and the work of the Bureau of Revenue Estimates, visit their website at https://www.marylandtaxes.gov/divisions/bre.php.
