Md. treats painful recession better than most of its peers

Look at it this way: We could be California. Or Arizona or New York.

Maryland's budget problems are terrible. The fiscal year that ended two months ago "was the worst year on record for the modern income tax," David Roose, director of the Bureau of Revenue Estimates, wrote Tuesday in a report to policymakers.

Thousands of state employees are again taking involuntary furloughs. Hundreds are being laid off. Police departments, fire stations, health clinics, schools and trash agencies are losing resources and delivering less.

But believe it or not, in the big picture Maryland doesn't have it so bad. Gov. Martin O'Malley and other policymakers have done a pretty good job managing the mess they got handed, although they're certainly not finished making cuts. The misery is far worse in other states.

California is letting thousands out of prison early. Huge blazes threaten to deplete public resources to fight fires. The treasurer had to issue $2 billion in IOUs to taxpayers and vendors after cash evaporated in a political firefight. About 100 state parks are going to close. In New York, revenue shortfalls have equaled more than $1 billion a month recently after the revenue machine known as Wall Street disappeared. A dogfight in the legislature froze public business for weeks this summer.

Critics of Gov. David Paterson predict a California-style cash crisis if he doesn't make new cuts soon.

Then there's Arizona. The state faces a shortfall equal to a third of its budget, but lawmakers just repealed the state property tax.

The Republican legislature can't even bring itself to say yes to the Republican governor's request for a temporary sales-tax increase. Gov. Jan Brewer predicts "devastating cuts" to education and services, which in Arizona weren't all that great in the first place.

Against this backdrop what's going on in Maryland doesn't seem quite so bad.

Last week the Board of Public Works approved the layoff of 200 state workers, new furloughs for tens of thousands more and total new cuts of $450 million. Included in that figure is reduced aid for localities, which will now go through their own budget torture.

O'Malley, a Democrat, says he has made total reductions of more than $4 billion. But much of this is double-counting - adding up cuts in the same programs in different fiscal years. Don't worry - his Republican predecessor, Gov. Robert L. Ehrlich Jr., played the same game.

While it's still a substantial amount, it's nothing compared with what's going on elsewhere or what would be happening without one of Maryland's biggest-ever tax increases, enacted during the 2007 special legislative session.

Give O'Malley and the legislature credit. The personal income tax increase that year was excessive, but raising the sales tax, corporate income tax and other taxes was critical to avoiding the kind of disaster seen in other states.

Nobody in Annapolis foresaw how bad things would be two years ago. But even in late 2007, it was obvious there was a gaping budget hole. Annapolis accomplished what seems to be beyond so many other legislatures and public executives these days, including the one in Washington: analyzing, deciding and acting.

Yes, one-party rule helps. And before we give the Democrats too much credit, don't forget that the Democratic legislature helped create the budget gap by denying Ehrlich the slot machines they later paved the way for under O'Malley.

More cuts are coming. Federal stimulus money will peter out in a year or two. Chances that the economy will revive enough to make up the difference are practically zero.

Maryland's tax revenue depends heavily on retail spending and personal income, neither of which will revive soon. Adjusting for the recent rate increase, sales-tax collections fell last fiscal year for only the second time in four decades, according to Roose's letter to state officials.

Don't count on slot machines, either. They'll contribute maybe $600 million a year when they get up and going - and who knows when that will be?

Even with the recently approved spending reductions, the long-term annual gap between projected revenue and projected spending is between $1.5 billion and $2 billion a year, says Warren Deschenaux, chief fiscal analyst for the legislature. There's no guarantee the midyear cuts approved last week will get us even up to the end of the fiscal year on June 30 without more misery.

"We could have a shot at it," he says.

Yes, revenue increases are another way to address budget problems. But Maryland has shot its tax-increase bolt. Taking into account the 2007 increases, we now rank No. 4 on the Tax Foundation's list of highest state and local tax burdens. O'Malley should boost tuition at state universities, but beyond that there aren't many revenue rate increases in the cards.

So the pain isn't over. O'Malley has shrunk the state work force by more than 3,000 jobs, but few of the reductions came from layoffs. Up for re-election next year, supported by the unions, he has so far spared state workers the kind of layoffs seen elsewhere.

Comptroller Peter Franchot's idea of a bipartisan commission to plan future spending cuts is still a good idea. But however things work out - and they won't be pretty - Maryland is handling the Great Recession better than most of its peers.