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Don’t rejoice over Maryland’s short-term surplus: Billion-dollar deficits still loom | COMMENTARY

The Maryland Board of Public Works, shown in a March 2020 photo, is likely going to face more decisions on budget cuts despite the recent news that Maryland closed out the last fiscal year on June 30 with a nearly $600 million fund balance. (AP Photo/Brian Witte, File)
The Maryland Board of Public Works, shown in a March 2020 photo, is likely going to face more decisions on budget cuts despite the recent news that Maryland closed out the last fiscal year on June 30 with a nearly $600 million fund balance. (AP Photo/Brian Witte, File) (Brian Witte/AP)

State government recently closed out the books for the fiscal year that ended on June 30 with some marginally good news: Things weren’t as bad as some had initially expected. But in the context of the broader financial picture in Annapolis, this is a bit like saying California wildfires haven’t consumed as many homes as some had feared even as the inferno rages on. Context is everything. What happens in the months to come is likely much more important than what anyone in Annapolis has done about the economic downturn so far. How the state balances its books (or whether it gets help from Uncle Sam) for the current fiscal year and the one that follows could make all the difference.

First, the numbers. The state’s general fund closed out June with $585.8 million in the bank. In the context of a budget 31 times that size, that’s a fairly standard result. It’s notable now because of how disastrous the COVID-19 pandemic has been with the state losing hundreds of thousands of jobs, businesses shuttered and so many out of work. But look closer. First is the matter of timing. The economic downturn did not really hit until the second half of the state fiscal year and mostly in the fourth quarter. Things had been cruising along well in tax collections prior to that. Even more importantly, the bailout from Washington, including the Paycheck Protection Program, did its job infusing cash into the economy and cushioning the fall. Those big handouts to employers and bonus unemployment insurance checks proved invaluable (even if the state was a bit slow in processing UI claims).

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Today, with Congress and the White House seemingly unable to negotiate further pandemic relief (and still facing a potential federal government shutdown in less than three weeks), the safety net is looking frayed. Gov. Larry Hogan has been at the forefront of calls for Washington to recognize the coming financial distress facing states, but in Congress, his own political party has dismissed such an approach as a bailout to unsustainable public pensions, a misleading claim at best. Democrats are more amenable, but if President Donald Trump is reelected, that exit lane is closed. So neither Governor Hogan nor General Assembly leaders can assume any more help is coming, certainly not for the remainder of this year.

How bad could things get for the state budget? We’ll know more when the Board of Revenue Estimates meets on Sept. 29, but earlier projections suggested the current fiscal year could be headed toward a deficit as high as $1.9 billion. The killer, however, is the next fiscal year, where the imbalance could grow to $4.8 billion. That’s a record two-year structural deficit approaching $7 billion. No $585.8 million fund balance or even $1.2 billion “Rainy Day Fund” will cover that even if you sucked them all dry. The problem is not any short-term cut in tax revenues, it’s the impact in the long-term. Like getting a 10% pay cut, it’s not this week’s smaller paycheck that gets you evicted, it’s the cumulative effect of all those downsized paychecks in the future and then running through your savings and credit cards.

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Want to see what the future holds? Look to the University System of Maryland. Chancellor Jay Perman’s voluntary 10% pay cut is the least of his woes. Higher education is facing a half-billion-dollar deficit this year augmented by COVID-19-related losses in revenue and increased costs, a tuition freeze and a $100 million cut in state aid. All sorts of budget cuts including furloughs, layoffs and pay cuts are on the table. That’s why Comptroller Peter Franchot’s call to use the fund balance to assist small businesses ought to be a non-starter. That’s just sacrificing the jobs of some employees to retain the jobs of others.

What ought to be happening right now is a negotiation involving Governor Hogan and the Democrats who control the state legislature and its fiscal committees to develop some rational, long-term approach to righting Maryland’s fiscal ship. It would involve some belt-tightening, of course, but it would also set spending priorities (such as improved K-12 schools) and possible revenue enhancements. That can start with everyone agreeing that the governor’s veto of a tobacco tax lawmakers passed earlier this year should be overridden. The same report that found Maryland running a fund balance in Fiscal 2020 also unearthed this nugget: Marylanders are spending 4% more on tobacco despite the downturn. That’s one lethal circumstance that higher cigarette prices could help cure while preserving the quality of state public education at places like the University of Maryland.

The Baltimore Sun editorial board — made up of Opinion Editor Tricia Bishop, Deputy Editor Andrea K. McDaniels, and writer Peter Jensen — offers opinions and analysis on news and issues relevant to readers. It is separate from the newsroom.

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