Become a digitalPLUS subscriber. $12 for 12 weeks.
News Opinion Editorial

Warning signs for Md.'s budget [Editorial]

Gov. Martin O'Malley's decision to seek $77 million in cuts to a budget that's barely 24 hours old is a sobering reminder that the state's economic recovery is tenuous at best. Maryland experienced no gross domestic product growth last year, and job creation here has been far from steady so far in 2014. Budget Secretary T. Eloise Foster introduced the budget cut proposals today by saying the administration wants to get ahead of any problems now in hopes of providing an extra cushion should revenues go south. But what trends we can measure so far offer only ominous signs that this may not be the end of the budget cutting for Mr. O'Malley during his term in office.

The $77 million, most of it trimmed from agency budgets, is a modest reduction by historical standards, amounting to about 0.5 percent of the state's $16.1 billion general fund budget. Compare that to fiscal 2009, when the governor made $414 million in general fund cuts through the Board of Public Works, almost 3 percent of the budget, or fiscal 2010, when he made $531 million in general fund cuts, nearly 4 percent of the budget. Former Gov. Robert L. Ehrlich Jr. faced a similar situation in his first year in office; he cut $208 million through the Board of Public Works shortly after his first budget took effect. That was 2 percent of the budget at the time.

On paper, Maryland appears to have a substantial cushion already. It has $795 million socked away in its rainy day fund, which amounts to the 5 percent of revenues that is required by statute. But in reality, that is money Maryland will never use; rather than the "rainy day fund," it should be called the "bond rating agency appeasement fund," as its existence has helped maintain the state's AAA ratings from all three major agencies. Mr. O'Malley never dipped into it during the depths of the recession and almost certainly won't during the remainder of his term.

The real cushion Maryland has for the next year is quite modest — $83 million in unallocated fund balance. The $77 million in cuts, plus assorted other measures approved by the Board of Public Works, will double that. Ms. Foster said that should prevent the need for any further adjustments during this budget year, but there are reasons to think that may be overly optimistic.

The Board of Revenue Estimates won't meet again until September, but Comptroller Peter Franchot cited some worrisome trends in state receipts so far this year. During the board meeting, he said that wage growth in Maryland during the first quarter was just 0.4 percent. As of the end of May, sales and use tax receipts are up just 1.1 percent over the previous year, and income tax withholdings are up just 2.1 percent. Both of those figures are below the state's revenue growth during the last fiscal year, and both are also substantially behind the revenue estimates the state approved in March, when sales tax growth was anticipated to be 5.4 percent for this fiscal year and individual income tax growth was projected at 6.6 percent. The difference between the actual growth rates so far and those the state forecast as recently as March would amount to more than $600 million on an annual basis.

The figures Mr. Franchot cited are, of course, very preliminary, and they include a first quarter when the national economy experienced an unexpected and large contraction, at least partially due to severe winter weather. The general consensus among economists is that growth will rebound during the rest of the year. Nonetheless, the situation isn't encouraging.

That said, some context is in order. When Mr. O'Malley was sworn in as governor in 2007, Mr. Ehrlich left him an unallocated fund balance of about $1 billion — but also projected gaps between revenues and expenditures that totaled $4.5 billion over the subsequent four years. Mr. Ehrlich had it even worse in 2003; Gov. Parris N. Glendening left him $13.6 million in cash and projected shortfalls of nearly $6 billion. By contrast, Mr. O'Malley is now set to provide his successor with $167 million in cash and $1.4 billion in projected deficits. Unwelcome as it may be that the state is making cuts so early in the budget year — and may find itself in a position to do so again before all is said and done — Maryland's budget is unquestionably on sounder footing than it has been in more than a decade.

To respond to this editorial, send an email to talkback@baltimoresun.com. Please include your name and contact information.

Copyright © 2014, The Baltimore Sun
Related Content
  • When will voters realize deficits aren't in their interest?
    When will voters realize deficits aren't in their interest?

    Of course Maryland's deficit isn't new ("In Md., deficits are nothing new," Dec. 21).

  • A bad investment
    A bad investment

    Maryland's film industry employs a lot of good people, mostly highly skilled laborers. Because the state has been home to a string of television series over the years, of which "Veep" and "House of Cards" are only the latest, many of them have set down roots here and have contributed to the...

  • No major tax rollbacks?
    No major tax rollbacks?

    Senate President Thomas V. Mike Miller told some reporters this week what most State House observers have long suspected — we should not expect some sweeping reduction in taxes during the upcoming legislative session. He also produced a spirited defense of the tax increases approved...

  • Congress must create a level playing field for bricks-and-mortar businesses and online vendors
    Congress must create a level playing field for bricks-and-mortar businesses and online vendors

    During the next few weeks Congress will have the opportunity to pass e-fairness legislation, which will update our sales tax system and restore fairness to small businesses in our community.

  • Hogan's fiscal realities
    Hogan's fiscal realities

    When Republican Larry Hogan was elected governor this month, his platform was narrow and clear: Roll back as many of the tax increases of the last eight years as possible. When he made that promise, he knew he faced a $405 million shortfall in this year's budget and next year's as soon as he...

  • Senator displays his own arrogance
    Senator displays his own arrogance

    State Sen. Paul Pinsky writes an appropriately-named commentary condemning corporate lobbyists and maintaining that he and his fellow Democrats will fight against this "corporate victory" in the past election ("Post-election arrogance?" Nov. 14). That's funny. I was under the apparently...

  • Hogan's fiscal rhetoric meets reality
    Hogan's fiscal rhetoric meets reality

    When Gov.-elect Larry Hogan proclaimed the need for "strong medicine" to cure Maryland's fiscal state, he drew some jeers from the Democrats in Annapolis. The O'Malley administration bristled at the notion that he was bad-mouthing the incumbent governor's fiscal management. Sen. Richard...

  • In Md., deficits are nothing new
    In Md., deficits are nothing new

    "Somewhere along the way, as Maryland's revenue picture went from bad to worse, a scary term entered the Annapolis lexicon: the 'structural deficit.'" So said The Baltimore Sun on February 9, 2003 as then-Gov.-elect Robert L. Ehrlich Jr. proposed a plan to wipe out a $2 billion dollar shortfall...

Comments
Loading