Maryland tax collectors are taking in money at a pace far greater than expected just weeks ago, creating a financial cushion that will help pay for daunting education, health care and other budget needs during the next two years.
Payments with income tax returns came in at $210 million more than anticipated last month, Comptroller William Donald Schaefer announced yesterday. Other tax collections also were higher, and the state has received $250 million more for its $11 billion general fund budget than expected in March, the last time projections were revised, Schaefer said.
Officials aren't sure what is driving the income tax windfall, but they suspect it was created by sales of homes that have appreciated markedly in value. They expect the trend to continue, which could help ease a burden caused by future commitments for education and health-care spending.
"My initial assumption is that this level of revenue is going to continue for a number of years," said David F. Roose, head of the Bureau of Revenue Estimates in the comptroller's office.
Federal law exempts from taxation the first $500,000 in the rise of a home's value for joint filers when it is sold, and $250,000 for individual taxpayers. But in many places, notably Montgomery County, homes bought years ago for relatively modest amounts are being sold for seven figures, so sellers owe taxes on the appreciation amount greater than $500,000. Many Eastern states are experiencing the same trend, Roose and Schaefer said.
"Though this may be seen as a surplus, these revenues are sorely needed to meet the needs of this state," Schaefer said. "We still face enormous pressure to meet future commitments to increased education spending and the continued growth in Medicaid costs.
The full amount of extra money will be determined after the 2005 fiscal year ends June 30, and the leftover surplus will be carried into the 2006 budget year.
But because the General Assembly passed the fiscal 2006 spending plan last month without knowledge of extra cash, the surplus money will be available for spending in the 2007 budget year -- which takes effect in July 2006.
That's the spending plan that lawmakers will pass during next year's Assembly session, in an election year. It means that lawmakers almost certainly won't need to raise taxes, approve slot machines or find another source of new revenue to balance the budget for another year.
Lawmakers had padded the fiscal 2006 budget with an extra $400 million in unspent surplus money to make their election year decisions easier. Yesterday's news means those decisions have become easier still.
"I don't think the budget per se will be the kind of issue it has been," said Warren G. Deschenaux, head of the General Assembly's nonpartisan Office of Policy Analysis, which reviews the governor's budgets and makes recommendations for cuts.
Projections still show that Maryland is on track to spend more money than it takes in over the next several years, a problem known as a "structural deficit." Because the governor must approve and lawmakers must pass a balanced budget, future spending plans will have to be balanced by reducing anticipated growth in programs or transferring money from reserve accounts, land-buying funds and other areas.
The higher tax revenue "doesn't eliminate our structural deficit issue, but it does narrow it down a bit," Deschenaux said.
Other higher collections include the state lottery, which took in $4 million more than expected last month because of a large Mega Millions jackpot; and corporate taxes, which are growing because the state closed a tax-avoidance loophole last year, Schaefer said.