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Candidates make many promises -- but how to pay for them?

Tax, spending pledges would be costly to carry out

By Michael Dresser, The Baltimore Sun

7:09 PM EDT, March 14, 2014

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As the 2014 campaign for governor heats up, candidates of both parties are making promises of bold new programs or deep tax cuts — in many cases giving vague and sometimes implausible explanations of how they will pay for them.

Whether they are Republicans calling for big tax rollbacks or Democrats proposing expensive initiatives, the candidates are making pledges that are hard to reconcile with Maryland's constitutional requirement that its budget be balanced — not just in the long run, but every year.

That isn't stopping prominent contenders for their party's nomination. Each of the three leading Democrats is vowing an expansion of pre-kindergarten education, counting on revenue streams that may not materialize. Three of the four leading Republicans are promising tax cuts on the theory they will produce enough economic growth to make up for lost revenue.

"This is campaigning as usual," said Donald Norris, chairman of the public policy department at the University of Maryland, Baltimore County. "Promise, promise, promise in order to win as many votes as you can on these promises — and then worry about it when you get in office."

This year, some of the promises have been especially grand as candidates in the hotly contested races seek to appeal to the fervent liberals or conservatives who are likely to turn out for the June 24 party primaries.

Their pledges come as the state grapples with a diminished but stubbornly persistent revenue shortfall in its $39 billion budget. The task of closing the gap became a bit more difficult this month when officials lowered state revenue projections by $238 million.

On the Democratic side, Attorney General Douglas F. Gansler has stood out as the candidate most willing to propose new spending and tax-cutting measures — sometimes with explanations of how he'd pay for the initiatives, sometimes not.

His proposals have included cutting the corporate income tax from 8.25 percent to 6 percent and exempting from taxes the retirement pay of all teachers, military veterans and first responders. His spending proposals include increased spending for historically black colleges and repeal of a 2011 pension reform program that has saved the state hundreds of millions of dollars. For most of these proposals, the campaign has worked up no cost estimates or budget offsets yet, spokesman Bob Wheelock said.

Gansler has also proposed some capital projects that could run into billions of dollars — extending the Washington Metro to National Harbor and building a high-speed rail between Washington and Baltimore. While those projects likely would get significant federal and perhaps private funding and could take decades to achieve, the state would almost certainly have to come up with some of the money.

Lt. Gov. Anthony G. Brown, as the Democratic front-runner, has proposed fewer expensive changes. He's made one tax promise — to exempt the pay of military retirees up to $150,000 at a cost of $17.5 million a year by 2019. Where he has proposed new spending, his campaign has generally provided specific budget estimates, though not necessarily offsetting cuts.

"I believe 90 percent of all of our policy proposals that have a cost have a payment method," said Brown campaign manager Justin Schall.

For one of Brown's larger proposals, an additional $160 million in school construction by 2019, the campaign supplied a detailed funding plan that relies on procurement reforms, diverting 1 percent of corporate tax revenue from the general fund and giving other building projects a lower priority. Left open is how those general fund revenues would be replaced and which nonschool projects would be deferred.

Del. Heather R. Mizeur of Montgomery County, the third Democrat in the race, is proposing a more expensive and comprehensive pre-K expansion plan than those favored by her two rivals. To pay for it, she proposes to legalize, tax and regulate marijuana — a reasonably credible source of new revenue if one assumes the legislature would adopt that sweeping change, which is not expected.

Mizeur has promised to set a high standard in her campaign for explaining how she will pay for any policy proposals she might make. Apart from expanding pre-K, she has proposed relatively few new spending programs.

Two Republican candidates, Harford County Executive David R. Craig and Charles County business executive Charles Lollar, are calling for eliminating the state income tax over several years. It's an eye-catching idea, but it means doing without a revenue source that generates about $8.5 billion a year — more than half the roughly $16 billion general fund budget.

Neither is proposing to raise other taxes to offset the loss of income tax revenue. Lollar insists the budget can be balanced by holding spending levels flat, which he contends won't have a significant impact on funding for schools and other major programs.

Ellen R. Sauerbrey, a former Republican nominee for governor and an adviser to the Craig campaign, said the Harford executive would require department heads to find cuts amounting to 3 percent of their agency's budget each year to help pay for the tax plan. The cuts would be cumulative and amount to more than 12 percent over four years, with no adjustments for inflation, she said.

A former school administrator, Craig has said education spending won't be considered sacrosanct. In particular, he has pledged to make deep cuts at the state education department.

Republican Del. Ron George of Anne Arundel County has been somewhat more conservative — in the fiscal sense — about proposing big tax cuts. He's calling for a 10 percent, across-the-board personal income tax cut and a gradual reduction in corporate taxes. He has detailed few specific spending cuts, insisting that several billion dollars can be achieved largely by rooting out waste through independent audits of state agencies.

Larry Hogan, a late entry into the Republican race, has been harder to pin down. So far, the former Ehrlich administration official has sounded a general call for tax and spending cuts but has offered no specifics.

"Larry's not going to make a whole lot of promises he can't keep," said spokesman Steve Crim. Hogan's rivals, Crim said, are "just making promises they can't deliver on."

Most of the Republican tax-cut proposals — as well as Gansler's stand on the corporate income tax — are based on the proposition that the revenue loss would be largely offset by gains from increased economic growth.

Democrats are for the most part skeptics, insisting that tax cuts equal spending cuts that would bring pain to ordinary people as basic services are reduced.

Warren Deschenaux, the General Assembly's chief fiscal analyst, said most independent studies dispute claims of offsetting revenue through economic growth.

"The consensus is that cutting taxes does not replace the revenue," he said.

Even if it did eventually, he said, the next governor would still face the problem of getting over the early years of the tax reductions, when revenues would decrease before any economic impact would be stimulated.

"You need to bridge to that new normal because the economy doesn't shift overnight," Deschenaux said. "But the budget has to be balanced when it's introduced and stay that way."

Deschenaux is also skeptical about some of the other ideas floated by Democratic contenders.

For instance, both Brown and Gansler are proposing to fund expanded pre-K using casino revenues. Deschenaux said that while that is permissible under law, that money has already been earmarked for other purposes. The pre-K money would have to come from those pots, he said.

"You can only spend a dollar once, and in our forecasts, those dollars have already been spent," he said.

michael.dresser@baltsun.com