Gov. Larry Hogan says the budget proposal he released today is “simply the first step” in determining how the state will spend taxpayers’ money in the upcoming fiscal year. That’s always true, but circumstances make it much more so this year. Uncertainty about the federal commitment to top Maryland priorities — chiefly in health care but in other areas as well — plus the unpredictable effects of the Trump tax legislation on state revenues make for a lot of complications Mr. Hogan simply couldn’t prepare for by the constitutionally mandated deadline for him to provide the General Assembly with his spending plan. Meanwhile, the maintenance crisis in Baltimore schools, the continued terrible toll of violent crime in the city, the opioid overdose epidemic and other emerging needs are already prompting calls for additional spending. And the governor’s baseline plan assumes he can persuade the legislature to reduce mandated appropriations for a variety of politically popular programs, including a package of aid to Baltimore passed in the wake of the 2015 riots; planned increases in payments to providers of services to the developmentally disabled and mental health and substance abuse treatment providers; and repayments to the state’s open space fund.
It’s an election year, which typically means it’s time for the governor to grease the way to a second term with a big spending increase (or, in some cases, a tax cut). Mr. Hogan is doing a little bit of that here and there; he’s proposing to increase a variety of business tax credit programs, spending on a scholarship fund for private schools and some targeted tax cuts for politically favored groups. But in historical context, it’s small potatoes. Overall, Mr. Hogan’s plan would increase the state operating budget by 1.8 percent next fiscal year. By contrast, the last Republican to seek re-election as governor in Democrat-dominanted Maryland, Robert L. Ehrlich Jr., proposed a mind-boggling 12 percent increase in spending in his last budget. The Department of Legislative Services is already questioning Governor Hogan’s claim that his spending plan is structurally balanced, and big problems loom in the next few years, but he does not appear to be breaking the bank in Fiscal 2019.
Mr. Hogan is proposing to hold the amount of new debt the state can issue for capital projects below the level that the legislature’s Spending Affordability Committee recommended, which is prudent given the rapid increases in debt service payments the state now faces thanks to borrowing Gov. Martin O’Malley used to mitigate the effects of the Great Recession. But his other big idea for limiting long-term spending growth — a blanket limit on mandated spending increases — is not likely to be any more successful this year than last.
Mr. Hogan has generally shown a willingness (if sometimes grudgingly) to work with Democrats on their spending priorities through supplemental budgets, and he suggested Tuesday that he expects to do so again this year. He’s left himself a little bit of wiggle room in the form of a projected $101 million closing balance in the state’s general fund (in addition to $882 million in the state’s rainy day fund). But that could vanish in a hurry. If the federal government fails to fund the Children’s Health Insurance Program, it would cost about $104 million to prevent 148,000 kids from losing their health care next year. Shoring up the state’s individual insurance marketplace to prevent rate increases exacerbated by Trump administration policies could cost more. Some of the spending cuts Mr. Hogan is proposing through what’s known as the Budget Reconciliation and Financing Act won’t fly. And the governor will clearly come under pressure to provide more funding for the crime fight in Baltimore.
Meanwhile, though, the governor and legislature have both committed to finding a way to counteract the state income tax increases that will come for many Marylanders as an unintended consequence of the federal tax reform bill. Legislative leaders unveiled a promising framework Tuesday, and the governor is at work on his own proposal. Any changes will have to be carefully considered to ensure fairness for taxpayers without going so far that they leave the state without adequate resources in the years ahead. The Trump tax bill will likely change many individuals’ behavior, and predicting how that will impact state tax bills is like trying to sink a double bank shot.
Hanging over the entire debate is the promise of a final set of recommendations from the Commission on Innovation and Excellence in Education (better known as the Kirwan Commission), which are due shortly after the legislative session ends. It’s a good bet that will entail a substantial increase in spending on K-12 (or, more precisely, pre-K-12) education. Whatever the state’s leaders decide on spending and taxes this year should be done with that challenge in mind.
Despite some tense moments, Governor Hogan’s administration and Democrats in the General Assembly have mainly worked well together on the budget. This year could be a real test.
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