Why State Revenues Are Down

LOUIS L. GOLDSTEIN

August 27, 1992|By LOUIS L. GOLDSTEIN

The Monday morning quarterback never throws too long, flubs a hand-off or gets sacked behind the lines. Of course, he never has the ultimate responsibility for the team's success or failure, either.

The same is true for the armchair revenue estimators, who can predict revenue growth perfectly -- after the revenues have been collected.

As chairman of the Board of Revenue Estimates, I'm one of three Sunday afternoon quarterbacks -- along with State Treasurer Lucille Maurer and Budget Secretary Charles Benton -- who have had the real responsibility of estimating revenues during an extremely unusual recession and major shifts in our nation's economy.

Over the last 25 years -- through all of the ups and down, booms and busts, recessions and recoveries since 1967 -- state revenues have been 100.87 percent of our estimates. How many other governments or businesses have less than 1 percent margin of error, on the plus side, in their revenue, sales or cost projections?

When the board made its latest estimates -- which the governor is free to use or not, as he chooses -- the president of the United States and his advisers, the national economic forecasters and national economic reports all stated that recovery was on the way.

Wharton Economic Forecasting Associates declared in the fall of 1991 that Maryland personal income was growing at a rate of 6.2 percent. Data Resources Incorporated announced a personal income growth rate of 6 percent, and in October 1991, the University of Maryland Department of Economics forecast a 6.7 percent growth.

Thus the 6 percent revenue growth for fiscal year 1993 forecast by the Board of Revenue Estimates was modest compared to the growth rates Maryland experienced before the recession. These ranged from almost 7 percent in fiscal year 1989 to 11.5 percent in fiscal year 1987.

But when the picture changed, it changed quickly and dramatically. The federal government substantially revised its employment figures, data on which both private and government projections were based.

Instead of saying, as it had earlier, that Maryland lost 25,000 jobs in 1991, the government said Maryland lost 75,000 jobs. While national figures now show that the economy was indeed growing earlier in 1992, that growth dropped off in the second quarter to only 1.4 percent -- far less than had been projected by national forecasters.

This recession has been the most unusual and unpredictable I have seen in many years of public service. Our continuing economic doldrums, including the unprecedented loss of high-paying jobs in our economy, has undermined consumer confidence to an astonishing degree.

In November 1991, the Board of Revenue Estimates asked representatives from national forecasting organizations to come to Annapolis and give us their best projections. We asked professional economists from the Maryland legislature to sit down with board personnel to compare economic assumptions and revenue projections. As chairman of the board, I set up a working group to monitor revenues and compare assumptions regularly.

There is nothing on the national horizon at present that points to a revival of economic growth in Maryland's sales or income tax revenues. The Board of Revenue Estimates will continue to monitor revenues and keep the governor and the legislature informed as the revenue picture changes.

Louis L. Goldstein is Maryland state comptroller.

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