The announcement last week by Maryland's Board of Revenue Estimates that the state will be taking in $238 million less in taxes this year and next was certainly unwelcome, and it complicates the already difficult task the General Assembly faces in enacting a balanced budget before it adjourns in April. The amount of tooth-gnashing it has prompted, however, is wildly out of proportion to its actual impact on the state's overall spending plans.
Comptroller Peter Franchot, who as chairman of the Board of Revenue Estimates was on hand to approve the new figures on Thursday, told The Washington post that the numbers are "proof positive that something is wrong." Del. Nic Kipke, the House minority leader, issued a statement concluding, "Clearly, all is not well in Maryland's fiscal house." Sen. David R. Brinkley, the Senate minority leader, issued his own statement, referring to Maryland's budget situation as a "crisis" brought on by a lack of fiscal restraint by Gov. Martin O'Malley and the Democrats who control the General Assembly. Attorney General Douglas F. Gansler, a Democratic candidate for governor, had been sounding similar themes even before this last batch of numbers was released. In an interview with The Sun's editorial board last week, for example, he said, "There's no reason why Virginia has a billion-dollar rainy day fund, and every year our General Assembly goes down with a billion-dollar deficit."
(For the record, Virginia completed fiscal 2013 with a $585 million unallocated surplus and a $440 million rainy day fund; Maryland closed out fiscal 2013 with a $502 million unallocated surplus and a $700 million rainy day fund.)
To put things in perspective, the write-down of revenue last week amounted to a 0.8 percent drop in expected general revenues for the current year (fiscal 2014) and a 0.7 percent drop in expected revenues for fiscal 2015. Considering the degree of uncertainty in forecasting how the state's $301 billion economy will develop from year to year and how that will translate into income, sales and other taxes, not to mention how Maryland's new foray into casino gambling will play out, that's pretty close.
Moreover, it's not exactly a surprise that growth in tax revenues would be slow. The Board of Revenue Estimates has been warning for more than a year that tax collections for fiscal 2014 would be iffy because of the effects of sequestration, and subsequently, because of October's federal government shutdown. And the board still expects fairly robust growth of 5.4 percent next year.
Critics of Maryland's fiscal practices and economic policies tend to point to Virginia as a state worth emulating — notwithstanding the fact that its legislature adjourned on Saturday without passing a budget at all. But despite historical differences between their approaches to budgets and taxes, the two states' revenues have tracked fairly closely in the years since the recession. Some years, Maryland's revenues have done better than Virginia's, some years worse, but overall the trend is quite similar: Virginia's general fund revenues are projected to grow by 17 percent from fiscal 2008 to fiscal 2015; Maryland's by 16.8 percent.
That's not to say that Maryland is without its fiscal challenges. The spending proposal advancing in the state Senate would balance the budget by taking $200 million from money that had been designated to shore up the state's undercapitalized employee pension funds. That's $100 million more than Governor O'Malley had initially proposed, which was in itself a bad idea. (In fairness, the Senate plan, unlike the governor's, does call for the eventual restoration of the full $300 million in extra payments the state committed to a few years ago.) Meanwhile, the state has not yet shelved other extraordinary measures it took to balance the budget during the recession — for example, using borrowing rather than cash to fund Program Open Space and cutting local road repair funding.
The latest revenue write-down does not indicate a crisis, nor is it proof that Maryland's entire philosophy of fiscal management is flawed. Rather, it reflects the nation's continued bumpy recovery from the recession, made worse by the actions (or inaction) of Congress. For Maryland policymakers, now is the time for caution and restraint, not panic.
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