Hogan's budget: The debate begins

Hogan's budget doesn't look so painful at first glance, but fights loom.

For all his talk of strong medicine and ending a spree of overspending in Annapolis, Gov. Larry Hogan's first budget, at least as he presented it, did not sound so drastic. At his first news conference since his inauguration, he said he increased funding for K-12 and higher education, maintained investments in school construction funding, avoided state worker furloughs and layoffs and, at least for the moment, left in place funding to continue the Red Line and Purple Line transit projects in the Baltimore and Washington areas.

But the details that have dribbled out so far suggest some tough medicine is in this budget, indeed, in the form of cuts to education, health care and state employee compensation. And it was impossible to avoid the sense that more shoes are left to drop. The governor and his new budget secretary, David Brinkley, alluded to the need for changes to some of the formulas that drive about four-fifths of state general fund spending, and Mr. Hogan promised that tax cut proposals are yet to come. What that will mean remains to be seen.

One certain piece of bad news for Baltimore and 12 counties is a cut in half to the Geographic Cost of Education Indexing formula, a part of the state's 2002 education funding law designed to compensate jurisdictions where the cost of living is high but which has been determined over the years to be optional. During the current fiscal year, the GCEI is $132 million state-wide, with Baltimore City getting almost $23 million. The largest share goes to Montgomery and Prince George's counties, but most counties in the Baltimore region get some of that money as well. Former governors Robert L. Ehrlich Jr. and Martin O'Malley failed to include the entire GCEI in their budgets at times, but it has been fully funded in recent years, and the cuts will have a real impact on local school systems' budgets.

The bigger long-term hit, though, could come from Governor Hogan's efforts to change the baseline formulas that govern school spending. The information he released to the public and lawmakers today was vague about his plans, but it's clear that the increase in spending he's proposing for K-12 education is less than the so-called Thornton formula calls for. What that means for funding in the future is uncertain.

Environmentalists are sure to be unhappy about the decision to stop repayments for Program Open Space money raided during the Ehrlich administration, even if they are cheered by Mr. Hogan's decision to fully fund the program going forward. And the state's powerful health care lobby is bound to fight against the governor's plans to hold Medicaid provider rates to Fiscal 2014 levels. State employees, meanwhile, are due for a $156 million reduction to their compensation — a cost of living increase they were given during the current fiscal year is now being treated as a bonus rather than a raise, and one that won't be renewed next year. To workers, that's going to sound like a nice way of saying "pay cut."

Other reductions are harder to gauge. Mr. Hogan intends to keep in place a 2 percent reduction to state agencies' operating budgets that Mr. O'Malley instituted for the end of the current fiscal year as part of a package of cuts made at the Board of Public Works. But what that will mean in terms of the agencies' abilities to serve their missions is impossible to know. Mr. Brinkley said the governor wanted to give his new agency heads maximum flexibility to find efficiencies so that the cuts have minimal impact on the public. But the rise in spending under the O'Malley administration was largely not the result of profligate increases to agency operating budgets but because of the demands of education funding, efforts to hold down university tuition, expansion of the Medicaid program and the like. We don't doubt that state government can be more efficient, but it's worth noting that the executive branch is already down 6,000 positions from where it was when Mr. O'Malley took office.

Governor Hogan is right about the need for Maryland to address its long-term fiscal problems. Debt service ballooned under Mr. O'Malley as a result of his decisions to maintain operating spending during the recession by shifting some costs into the capital budget. The increase in state debt service payments in the coming fiscal year is almost as large as the combined increases for everything else in the budget. And the cost of compensating for years of under-funding the state pension system is escalating rapidly. That means investments to help Marylanders today are increasingly getting squeezed out to pay for past spending or future needs. He's also right that the state's decade-long habit of using fund transfers and other gimmicks to paper over the imbalance caused by spending formulas that demand increases without regard to the state's ability to pay is unhealthy. He claims to have eliminated the so-called "structural deficit" now and forevermore through his spending proposal. Mr. O'Malley thought he had done that, too, at least twice. Only time will tell whether Mr. Hogan is more successful.

Mr. Hogan says he wanted his spending plan to make Maryland an easier place for families to live and prosper and to make it a more attractive place for families to move to. His campaign was predicated on the idea that what's making it difficult and unattractive is excessive spending and taxation, and that resonated with the electorate. He can certainly claim a mandate, and we don't disagree that controlling spending growth is necessary. The question is whether the cuts Mr. Hogan chose are the right ones, and determining that is going to take much more analysis, discussion and debate. During the campaign, Mr. Hogan's promises about taxes and spending were entirely in the abstract. Now voters will get to decide whether they're as appealing in reality.

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