Descheneaux and Meyers: How COVID Affects the Budget and How We Can Prepare for Future Shocks

​The COVID pandemic has presented us with a string of important medical questions to which we initially had no answers, such as: How contagious is the disease? And which therapies might prevent deaths? We are still uncertain about when a safe and effective vaccine will be widely distributed enough to allow a return to economic and social normality. All this uncertainty has affected and will affect Maryland’s budget.

After we learned that COVID is especially contagious, we took a series of dramatic steps to reduce cases, starting with an unprecedented shutdown of economic activity. This pandemic was guaranteed to hurt the state’s fiscal position, in part because we had to make unanticipated purchases of medical supplies, but most importantly by reducing revenues.

It would be great if the state’s deservedly-respected tax experts could accurately project that revenue decline — but that task is extraordinarily difficult because of the unprecedented nature of the pandemic. If the revenue losses turn out to be very large, they will greatly exceed what the state saved in the cash balance of the general fund and in the “rainy day fund” (technically known as the Revenue Stabilization Account). Because Maryland must balance its operating budget, deficits that can’t be closed by drawing down savings must result in spending cuts and/or revenue increases. Many people are now worrying, and rightly so, about upcoming cuts.