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Maryland policymakers can expect robust economic growth in the years ahead, fueled by federal aid, a return of workers to the labor force, and consumer spending, an economist told a Senate panel on Thursday.
But rising wages 鈥� propelled by an unusual churn in the workforce 鈥� are going to make it 鈥渋ncredibly difficult鈥� for state and local governments to attract and retain talent.
The assessment was offered by Dan White, director of government consulting and fiscal policy research for Moody鈥檚 Analytics. His annual briefing helps prepare members of the legislature鈥檚 fiscal committees for the thousands of spending and revenue decisions they will make during their 90-day session that began on Wednesday.
White told the Senate Budget and Taxation Committee that 鈥渢he economy is doing quite well, the labor market is coming back,鈥� and that American households are sitting on an historic amount of cash ($3.5 trillion, more than triple the normal amount) 鈥� money that is likely to be spent by consumers post-pandemic.
But he warned that 鈥渋nflation is starting to kick up much higher than we would have ever expected.鈥�
Inflation and the potential for a new COVID variant represent the biggest potential threats to the economy in the near future, White said.
Consumers saw prices jump 7 percent in 2021, the largest jump in 40 years. Supply chain issues, a shortage of truck drivers and manufacturing problems in China account for much of the increase.
And it鈥檚 not just shoppers who are suffering sticker shock.
Employers are having to pay more to keep workers and fill vacancies, in part because of the number of people who have left the labor pool. That鈥檚 where state and local governments are getting hammered by an increasing 鈥渜uit-rate.鈥�
鈥淭he state and local government rate is as high as it has ever been,鈥� White told lawmakers. 鈥淎nd we have more state and local job openings than we have in any other industry.鈥�
While the private sector can raise prices to offset rising wages, state and local governments cannot. 鈥淵ou鈥檙e having to compete in a very difficult labor market right now, and attracting folks into the public sector labor force is going to be incredibly difficult over the next four or five years,鈥� White said.
Asked about his legislative priorities for the new session on Wednesday, Senate President Bill Ferguson listed several, including 鈥渆nsuring that we have the best and brightest public workforce, and that means salaries,聽 adjustments and investing in our public workers.鈥�
鈥淲e have got to make salaries more competitive across the board,鈥� he added.
At her last Board of Public Works meeting, former Treasurer Nancy K. Kopp (D) warned about a looming state government 鈥渂rain drain鈥澛�.
She said it has 鈥渁lways鈥� been 鈥渁 serious issue鈥� but now is 鈥渞eaching a critical stage.鈥�
White said people are hesitant to return to the workforce for two main reasons 鈥� they鈥檙e not comfortable being around others in the midst of a pandemic and they have childcare issues.
The economy is expected to reach 鈥渇ull employment鈥� later this year, but he cautioned that economists may need to recalibrate their definition of 鈥渇ull employment鈥� given the dramatic flux in the labor market.
On a percentage basis, more Marylanders have quit their jobs during the pandemic than in the nation as a whole, and workers here have returned to the workforce more slowly, White told the panel.
The rise in telework is also having impacts on the decisions employers about how much space they need, a trend that will impact local planning and land use.
鈥淲e鈥檙e seeing increases in warehousing and server farms, and we鈥檙e seeing big cutbacks in where we put people. Because we just don鈥檛 need as large a space to put people as we did.鈥�
Maryland finished fiscal 2021 with a $2.5 billion surplus, much of it tied to pandemic aid from the federal government. Gov. Lawrence J. Hogan Jr. (R) and the legislature are expected to tussle in the coming weeks about how to best use those funds.
鈥淲e鈥檙e going to have this one-time revenue,鈥� said committee chair Guy Guzzone (D-Howard). 鈥淏ut what happens the next year? Is it going to catch up to us?鈥�
Yes, White said, noting that higher-than-normal inflation is likely to boost the costs the state faces.
鈥淚 think a lot of people are kind of overwhelmed with how much money they have,鈥� he added. 鈥淚t鈥檚 exceptionally important that one-time monies are spent on one-time things.鈥�
