Annapolis. -- Think what a challenge it can be to balance your checkbook at the end of each month -- to match income and outgo. Then imagine trying to balance an $11 billion checkbook 18 months in advance -- when your most reliable sources of income and the demands on your budget seem to have gone haywire.
That's the challenge that has faced Maryland's Board of Estimates, of which I am chairman. For years, we have estimated billions of dollars in revenue within 1 percent -- an outstanding accuracy record. Because we've been so accurate in the past, I am often asked why we didn't see the current financial situation coming. While the board has been forecasting slow growth since December 1989, no one could be certain when things would actually turn down. Even national economic forecasting services were taken by surprise at the steepness of the decline that occurred in 1991.
In the past year, an unprecedented number of wild cards -- economic and otherwise -- have made our hand harder to play, and an increasing number of players -- legislative and budget staffs with their own estimates -- have made this high-stakes game even harder for the citizen to understand.
* The current recession is unusual in several important ways. Unlike past recessions, it is a white-collar recession that has hit particularly hard in the Northeast -- as opposed to the blue-collar, rust-belt recessions of the late 1970s and early 1980s.
* It's the only recession I've ever seen, during all my years as comptroller, that combines low interest rates, low inflation, savings-and-loan problems, bank problems, insurance-industry problems, large federal budget deficits and a credit crunch.
* When we estimate revenues, we look at the rate of employment, because it is people with jobs who pay taxes and make purchases. Throughout 1991, employment in Maryland has been below 1989 levels, and nobody agrees on how long it will take for employment and personal income to make a prolonged turnaround.
* Estimated payments from individuals whose income is not subject to withholding are lower, reflecting the adverse trends in business income, including capital gains. Because personal-income growth was slower, refunds were higher than nTC expected, complicating the estimating process.
* Our second-largest source of general-fund revenue, the sales and use tax, has been hit even harder and has been even harder to estimate. Sales- and use-tax revenues have been below estimates since the spring of 1990 and below the previous year's levels since October, 1990 -- an absolutely unprecedented trend.
* Recent layoffs by some of Maryland's largest private employers have only exacerbated the consumer-confidence crisis, depressing retail sales even more.
* A revival in the construction industry, especially in homebuilding, is a key to any recovery. But such a turnaround would be preceded by reinstated lines of credit, news of contracts, and lumber and building materials moving over our highways. We're not seeing them, and given the continuing credit crunch, I don't know when we will.
As if all of this wasn't bad enough, several non-economic factors have made the estimating job even harder. The national economic forecasting services, including the ones Maryland subscribes to, do not agree on whether the recession is even over, much less on the timing and speed of the recovery.
* The federal statistics on which everyone relies are constantly being revised. This is not necessarily a problem in good years, but it can be disastrous when the economy turns down faster than the economic data can keep pace. It means economic assumptions are being necessarily made with data that may be falsely optimistic.
* Employer withholding, which is the largest portion of state income-tax revenue, has been deceptive. That's because several our largest employers, including federal government agencies, prepaid their October obligation with their September payment,
just before the end of the federal fiscal year. This made the revenue figures took falsely optimistic until we studied them closely.
* November is also one of the few months in which we receive both employer withholding and estimated income-tax payments. In addition, we didn't get some of the state editions of the national economic reports until days before the estimates were due. All of this meant that important pieces of the revenue puzzle simply weren't available for analysis until December 1. We have adjusted our revenue estimates almost as quickly as the economy itself has shifted, reducing estimates for fiscal years 1991 and 1992 by $1.1 billion since last December.
It has been said that the profession of economics exists to make fortune telling look respectable. We'd like nothing better than an accurate crystal ball. It would save us a lot of work. But until one comes along, we'll be watching the economy closely and analyzing the revenues as they come in, to provide the most current and accurate estimates possible.
Louis L. Goldstein is comptroller of Maryland.