Gov. Martin O'Malley's final budget proposal leaves the state on a sounder fiscal footing than when he took office seven years ago. Though he will not bequeath his successor anything close to the hefty fund balance his predecessor, Robert L. Ehrlich Jr., left for him, he will also not saddle the next governor with anything like the projected billion-dollar annual budget shortfalls he faced. And Mr. O'Malley has generally resisted the urge to lard up the election year budget with unaffordable goodies that will help his allies at the ballot box. That said, his final spending plan avoids some of the hard decisions that will ultimately be needed to eliminate for good the state's gap between expenditures and revenues, and it continues a pattern that will limit the next governor's ability to cut taxes or expand services.
On the positive side of the ledger, the projected budget increases ongoing spending in the general fund — that is, the portion of the budget supported directly by Maryland tax dollars rather than federal aid or other sources — by about 3.6 percent in a year when state revenues are expected to grow by 5.1 percent. (By contrast, ongoing spending in Mr. Ehrlich's last budget, when he was running for re-election, grew by 11.6 percent at a time when revenues grew by 3.9 percent.) Mr. O'Malley's proposal is also well below the 4 percent growth target set by the state's Spending Affordability Committee.
Even so, this budget does not eliminate the state's so-called "structural deficit." Because Maryland, like virtually all states, must enact a budget every year that is balanced (at least in theory), it does not borrow money every year to fund ongoing operations like the federal government does. However, that doesn't mean the money coming in ever year exceeds the money going out; the difference is known as the "structural deficit," and governors have historically used a variety of tricks and one-time measures to paper it over.
Mr. O'Malley is no stranger to those tactics, but he has during his two terms taken a number of steps — notably, constraining projected spending growth, raising taxes and fees and legalizing, then expanding, casino gambling — to deliver a permanent solution. That he has been unable to do so is mainly a testament to the difficult economic circumstances of the last seven years rather than to a lack of resolve. The latest shock from the federal government's sequestration budget cuts and October's government shutdown left him with one more budget hole to dig his way out of, to the tune of nearly $600 million between the 2014-2015 fiscal years.
The governor managed to solve that problem without including taxes or fees, but that doesn't mean he balanced the budget entirely through cuts, at least not as most people would understand the term. The single largest step the governor took was to take some of the savings from a pension reform plan enacted three years ago and, instead of reinvesting them in the pension fund as he had planned, use them to shore up the operating budget. By his estimates, this action will only slightly delay the point at which the pension system would be fully funded, but it is nonetheless an example of kicking the can rather than taking steps toward sustainability.
The same is true of Mr. O'Malley's continuing practice of issuing debt to pay for Program Open Space. The state's transfer tax is supposed to be dedicated to that purpose, but instead Mr. O'Malley has tended to use it to support the operating budget and has borrowed money through the capital budget to pay for land preservation. That has contributed to a sharp increase in the state's projected debt service payments. In the current fiscal year, the state is expected to have to contribute $83 million from the general fund to augment debt service payments, which are ordinarily covered by the state's portion of the property tax. By the end of the next governor's term, that's expected to grow to $531 million. That figure is baked into projections showing revenues exceeding expenditures as soon as fiscal 2018, but it will nonetheless constrain the next governor's ability to enact his or her priorities.
On the whole, though, Governor O'Malley leaves a legacy of maintaining or expanding Maryland's investments in education, health care, environmental protection and transportation infrastructure during the most trying of economic times — and of making the politically unpopular decisions necessary to support them. His last budget doesn't solve all the problems the next governor might face, but it doesn't greatly add to them either. For an election year budget, that's pretty good.
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