Maryland's revised budget estimates projecting collections of $405 million less than previously expected this year and next, coming as they are in the middle of a gubernatorial election, have prompted two politically charged questions. First, should Gov. Martin O'Malley seek additional budget cuts through the Board of Public Works before his successor takes over? And second, does this prove that the entire economic agenda of the O'Malley administration is fatally flawed and must immediately be reversed, lest Maryland slide into ruin? The answers are yes to the first question and no to the second.
A bit of context is in order here. It is certainly not a welcome sign that Maryland's Board of Revenue Estimates is projecting lower individual income and sales tax revenues than it did in March. But it's not unusual either. In the last 10 years, the board has revised the March revenue estimates downward seven times. It's also worth bearing in mind that this revision does not mean Maryland is now expected to take in less money than it did before. Rather, we're talking about a slightly lower rate of increase than had previously been expected. Now the state estimates that general fund revenues will grow by 4.4 percent in the current fiscal year and 4.1 percent next year — which is precisely the average rate of growth Maryland has experienced over the last two decades.
Yet to hear Comptroller Peter Franchot and Republican gubernatorial candidate Larry Hogan tell it, the revision may as well be a sign of the apocalypse. Mr. Franchot, a Democrat, warned that Maryland's economy is stagnant, "consumers are struggling," "businesses inevitably feel that pain" and nothing will change unless Maryland's government mends its ways. Mr. Hogan was more pointed, saying the revision was "utterly devastating" and proof that Governor O'Malley and Lt. Gov. Anthony G. Brown (Mr. Hogan's rival in the November election) "have taxed and spent our economy into the ground."
We would be the last to argue that Maryland doesn't need to examine its tax and regulatory policies with an eye toward reducing our dependence on the federal government — long a source of stability for our economy but now one presenting much uncertainty. But the notion that Maryland's economic policies are leading it to ruin is belied by what's going on in the rest of the country. According to a report this month from the Nelson A. Rockefeller Institute of Government, the second quarter of this year saw the largest drops in state income tax and overall tax collections compared to the previous year since the depths of the recession. Of the 48 states reporting data, 29 of them had revenue declines in the second quarter, and the states that saw increases or decreases follow no clear political pattern. Tax collections were up in conservative Texas, but so were they in liberal Massachusetts and California; meanwhile, the biggest decline anywhere was in Kansas, thanks to the enactment of the very sorts of budget and taxation policies conservatives are clamoring for.
Perhaps most pertinent to the conversation about Maryland's competitiveness, Virginia is in much worse shape than we are. This month, Virginia Gov. Terry McAuliffe and Republican leaders in the legislature agreed on a plan to plug a $2.4 billion budget hole this year and next through 3 percent cuts in most state spending and by using $705 million from the state's rainy day fund. And that still leaves a deficit of $272 million for the state to grapple with next year. However much federal sequestration is hurting Maryland, it's hurting the supposedly more business friendly commonwealth to our south much more.
We do agree with Mr. Franchot about one thing, though. Governor O'Malley should seek what savings he can find in the current year's budget and bring them to the Board of Public Works rather than leaving the matter up to the next governor. Under current projections, Maryland's budget for the current fiscal year would stay in balance without tapping our rainy day fund, but doing so would bring the state's unallocated balance down to just $10 million, which is too close for comfort. The sooner we make spending reductions, the less severe they will need to be. Mr. O'Malley has long followed that principle. We'd hate to see him stop making hard decisions just because he has one foot out the door.
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