Despite projections of a looming fiscal crisis, a bipartisan committee of legislators recommended one of the largest state government spending increases of the past decade yesterday, saying the money is needed to pay for a landmark education funding program.
The Spending Affordability Committee's mission is to suggest limits on increases to the state budget to prevent it from outpacing growth in the economy. But lawmakers conceded yesterday that the 7.9 percent increase they authorized for the fiscal year that begins in July is unsustainable over the long run, given that personal income growth in the state is expected to be about 5 percent or less in the foreseeable future.
Lawmakers said such a large spending increase is necessary to allow Gov.-elect Martin O'Malley and other politicians a chance to fulfill their promises to fund education and other programs next year. But new revenue of $1 billion or more a year -- possibly from higher taxes -- will be necessary to bring balance to the budget in the long term, they said.
"We can't keep doing this without something to bring us more revenue," said Sen. Edward J. Kasemeyer, a Howard County Democrat and co-chairman of the committee.
The figure adopted yesterday would allow a $1.5 billion increase in spending on general government and higher education.
The limit is not binding on the governor, who prepares the budget, or on the legislature, which can trim his request. But in practice, the budget almost always mirrors the spending affordability limit. If that trend continues, Maryland will spend about $19.7 billion on those services next year.
"We will consider the committee's recommendation along with the significant structural deficit that the state faces as we continue to develop our budget priorities during the transition," O'Malley spokesman Rick Abbruzzese said.
The recommendation comes at a time when legislative leaders are calling for an overhaul of the state's tax structure to make the system more reflective of the Maryland economy. Over the next several years, lawmakers will likely consider increases in some taxes and cuts to others -- with an overall rise in how much citizens and businesses pay for government.
Analysts are projecting billion-dollar gaps between revenues and expenses within two years, although by law the state budget must be balanced.
Barbara A. Hoffman, the former chairwoman of the Senate Budget and Taxation Committee, said projections of fiscal crisis are nothing new for the state government and may be useful to force a long-overdue rethinking of the tax structure. Avoiding a significant slowdown in spending growth this year may help create the pressure for lawmakers to make changes that have failed in the past, such as making the income tax more progressive.
"This is it," she said. "This is the last year before some kind of reckoning happens, and in a way, it's giving O'Malley a year to get his feet wet."
Senate President Thomas V. Mike Miller said the 7.9 percent growth rate is necessary to give O'Malley temporary flexibility to meet his campaign promises. But he said O'Malley shouldn't delay seeking changes to the tax structure because they will likely be difficult to achieve politically and might take time to pass the legislature.
"Hopefully, there's a quick learning curve on the part of the [incoming administration] and the will to move forward to address this now," Miller said.
The committee recommended dipping into the state's rainy-day fund -- which Gov. Robert L. Ehrlich Jr. stocked with extra cash from recent surpluses. But state fiscal analysts estimate that the new governor will still have to find cuts in other programs to fund increases in public education required by a program known as the Thornton formula.
O'Malley promised to fund part of Thornton that Ehrlich skipped, a component to give more money to jurisdictions where it is more expensive to educate students. That amounts to nearly $100 million next year. The task of funding Thornton has also grown more difficult because of a part of the formula designed to account for inflation -- which has created a $200 million price tag.
Given that commitment, limiting spending increases to the rate of growth in the economy isn't feasible, said Warren Deschenaux, the General Assembly's chief fiscal analyst.
"Five percent growth would pay for Thornton without accounting for the rest of state government," Deschenaux said. "Unless growth is much more robust than we imagine, a very significant gap will continue."
Sen. David R. Brinkley, the minority leader from Frederick County and a member of the Budget and Taxation Committee, said allowing so much growth this year "very well may be" a move to add to the justification for a tax increase in the next few years. He said the Republican caucus will be keeping a close eye on the new administration's budget.
"Our main mission is to keep that spending growth under control and also to continue to demand some accountability," Brinkley said.
Last year, the committee initially recommended a limit of 8.9 percent growth in spending, which would have been the largest one-year increase since 1992. But Ehrlich proposed a budget that was 10.6 percent higher than the previous year's.
Legislators usually try to cut the governor's budget to stay within the limit set by the affordability panel. But when it became clear that so large a cut would be difficult -- particularly in an election year -- the committee changed its recommended limit to 9.6 percent, effectively moving the goal line closer. They were able to make enough cuts to limit spending to 9.57 percent, barely under the limit.
Del. Norman H. Conway, the chairman of the House Appropriations Committee and an Eastern Shore Democrat, said there's no reason the governor and legislature couldn't push growth lower through the normal budget process.
"The budget is prepared by the governor, and he's going to make a decision," Conway said. "I think he's going to be cognizant of what our situation is, and I think we're going to see a reasonable proposal."