Aided by January tax increases, state revenues are expected to grow 5.3 percent this fiscal year and 8.1 percent in fiscal 2009, but state analysts said there were continuing signs of economic weakness that could lower future tax collections.
Comptroller Peter Franchot cautioned that the state and the country are “in a high-risk fiscal and economic environment.”
“We are not immune to national trends,” Franchot said at Thursday?s annual meeting of the Board of Revenue Estimates, which are used to set limits for state spending. “We should proceed with an abundance of caution.”
The estimates are based on tax collections and economic forecasts made by outside consultants and advice from business people, and assembled by a group that includes fiscal analysts from the executive and legislative branches.
“The trends are expected to deteriorate,” particularly in the housing sector, said David Roose, chief of the Board of Revenue Estimates. Home prices had been flat and are now declining in some areas, Roose said.
The lowering of home values means fewer people are tapping into home equity lines of credit and spending the money on home improvements, appliances and other big-ticket items that generate sales tax revenues. “We do see some other signs of weakness” in the economy, Roose said.
The official revenue report delivered to Gov. Martin O?Malley said, “By some estimates, the risk of recession is approaching 50 percent, and it now stands at a higher level than at any time since early 2001 ? when the economy actually was in recession. The consensus remains, however, that the national economy will skirt a recession.”
Franchot complimented O?Malley for addressing the structural deficit of $1.5 billion next year in the special session. “I?m hoping that our progress won?t be undone by a substantial increase in spending,” Franchot said.
O?Malley listened to the report but made no comment on it.
After the meeting, Franchot repeated his criticisms of the work of last month?s special session, particularly its extension of the sales tax to computer services, which he said will be difficult to enforce.
