Deficits loom despite growth in tax revenue

State officials puzzled by drop in corporate payments

December 14, 2006|By Andrew A. Green | Andrew A. Green,Sun reporter

Maryland should see slightly stronger growth in tax revenue next year, but not enough to change projections for budget shortfalls in the long term, the state's Board of Revenue Estimates concluded yesterday.

The overall estimates, which form the basis of the budget lawmakers must craft during the coming General Assembly session, were roughly what state officials expected them to be at this time last year, meaning that the state's economy continues to grow.

"There were no nasty surprises at all," said Treasurer Nancy K. Kopp, one of three board members. "Everything is where we thought it would be."

Board members said some troubling signs remain, particularly a puzzling drop in corporate income tax payments. That tax is prone to volatility and makes up a small part of the overall budget picture, but it stands in contrast to strong corporate profits and large increases in corporate tax revenues in neighboring states, said David F. Roose, the board's executive secretary.

"The economy as a whole is doing well. The tax revenues are coming in just about as well as we expected them to do last year, but the question is just this one small piece that's not doing well," Kopp said.

The board's report estimates overall growth in state general fund revenues of about 3.9 percent during the current budget year, which began July 1 and ends June 30, 2007. That's not quite as strong as the board estimated when it revised its revenue projections in March, meaning the state will have about $56 million less in its accounts for the next fiscal year.

However, the board expects tax receipts to grow about 4.5 percent in fiscal 2008, bringing total general fund revenue to nearly $13.5 billion.

That growth, coupled with leftover cash from the final two budgets of Gov. Robert L. Ehrlich Jr.'s administration, means Gov.-elect Martin O'Malley is likely to have a relatively easy job balancing the fiscal 2008 budget, as state law requires.

However, Comptroller William Donald Schaefer, who chairs the board, said he is concerned about the potential for long-term problems in the state budget.

"Are the expenditures that are coming to us more than we are getting in dollars?" Schaefer asked. "I understand there's a big deficit that O'Malley is going to face."

Long-term state budget projections show that spending is likely to outpace revenues by $1 billion or more a year beginning in fiscal 2009.

Kopp said O'Malley should consider taking immediate steps to close the long-term gap between revenues and spending.

"It's much easier to address now than if you wait to 2009," she said.

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