Structural deficit is nothing new
Recent news reports have announced that the state is facing a structural deficit, implying that this is a new phenomenon. Even our newly elected governor has been recorded as saying that talk about the structural deficit began after the election -- seeming to imply that the previous governor hid this problem from the public. In fact, we are in great fiscal shape for the FY08 budget, due to Governor Ehrlich's strategy to reserve $840 million of last year's surplus to help cover '08 expenses. As a result of legislative action and additional surplus, Governor O'Malley has almost $1 billion to cover FY08 expense increases and still leave 5 percent in the state's Rainy Day Fund.
Truth is, the structural deficit is an ongoing issue with the state. In the 1990s, when I was watching the state budget for former Howard County Executive Chuck Ecker, in the five-year projections, we would consistently see a structural deficit of $500 million in the fifth year out. Even the Ehrlich administration reflected structural deficits in its five-year projections in the Budget Highlights books. Unlike the situation Ehrlich inherited, the problem is not in the current year (FY07) or next year (FY08), but in FY09.
What is a structural deficit? It means that estimated growth in spending is greater than estimated growth in income. It's like earning $2,000 each month and having expenses totaling $2,200.
How did it happen? Our current situation is a result of increased spending by legislative action. In the 2002 legislative session, before the 2002 election, the legislature passed the Bridge to Excellence in Education (Thornton) Bill mandating increased spending on K-12 education, with no specific funding source identified ('08 funding to increase by $600 million). Without any enhancements to Medicaid eligibility, the annual funding increases by $100 million each year. In addition, each year the legislature passes legislation that mandates spending -- the 2006 session alone increased spending for FY08 by $222.6 million, increasing to $372.7 million by FY11.
What can we do? Since we cannot operate the state at a deficit, we must look for ways to fix the problem. Options include prioritizing spending, becoming more efficient and reducing spending as we have done during the last four years vs. increasing revenues -- higher taxes, more fees, other sources of revenue which is the preference of the legislature based on legislation passed and vetoed in the previous term. How we resolve the problem for the future will be the subject of debate over the next several years.
Gail H. Bates
The writer is a Republican delegate from District 9A, representing part of Ellicott City and western Howard County.