Bud­get bad news

Our view: An $800 mil­lion write-down in state tax rev­enues is worse than ex­pected but doesn’t re­quire ex­treme mea­sures

Baltimore Sun - - FROM PAGE ONE -

The lat­est round of fis­cal bad news for Mary­land’s state gov­ern­ment prompted a spokes­woman for Gov. Larry Ho­gan to dust off a clas­sic Repub­li­can talk­ing point: “Let’s be clear: Mary­land doesn’t have a rev­enue prob­lem,” spokes­woman Amelia Chasse said. “Cer­tain mem­bers of the Gen­eral Assem­bly have a spend­ing prob­lem.”

The Board of Rev­enue Es­ti­mates just con­cluded that the state’s fi­nances over this year and next will be about $800 mil­lion worse than it ex­pected six months ago. The state’s an­tic­i­pated spend­ing hasn’t changed since then. But its an­tic­i­pated tax rev­enues have. Sounds like a rev­enue prob­lem to us.

More ac­cu­rately, it sounds like a rev­enue es­ti­mate prob­lem, and in the grand scheme of things, not that big of one. The $800 mil­lion re­duc­tion sounds like a lot, but it amounts to 2.3 per­cent of the nearly $34 bil­lion in gen­eral fund rev­enue Mary­land ex­pects to col­lect in fis­cal 2017 (which started July 1) and fis­cal 2018. The BRE’s Septem­ber es­ti­mates in the last few years have proved quite ac­cu­rate (within 1.5 per­cent, one way or an­other, of ac­tual re­sults), but his­tor­i­cally, 2.3 per­cent is well within the mar­gin of er­ror. This news isn’t good, but it isn’t rea­son to panic, ei­ther.

Comptroller Peter Fran­chot, in his state­ment about the new es­ti­mates, laments the slow economic re­cov­ery and says that in­creases in jobs and de­creases in un­em­ploy­ment aren’t trans­lat­ing to broad pros­per­ity. Av­er­age wages are pro­jected to in­crease just 2.1 per­cent this year, he said. But that’s a far cry from what Mary­land ex­pe­ri­enced dur­ing the Great Re­ces­sion of 2007-2008. Wages may not be grow­ing fast, but they are grow­ing, and so is Mary­land tax rev­enue — just not as much as an­a­lysts ini­tially pro­jected.

There is no ur­gent need now for the gover­nor to seek ma­jor cuts to cur­rent-year spend­ing at the Board of Pub­lic Works. The amount of this year’s rev­enue write-down is al­most pre­cisely the same as the amount of un­spent cash the state ex­pected to have at the end of the cur­rent bud­get year, and Mr. Ho­gan has al­ready bol­stered that po­si­tion by re­fus­ing to spend mil­lions the leg­is­la­ture fenced off for its pri­or­i­ties. We can cer­tainly wait un­til the next rev­enue es­ti­mates in De­cem­ber to de­ter­mine whether ac­tion is war­ranted.

As for the bud­get Mr. Ho­gan will sub­mit in Jan­uary, pre­vi­ous pro­jec­tions had the state’s ex­pected spend­ing and rev­enues very nearly aligned. The so-called “struc­tural deficit” for next year was a mere $28 mil­lion, and even with the write-down of $418 mil­lion for fis­cal 2018, the state is poised to go into Jan­uary’s leg­isla­tive ses­sion with a smaller bud­get prob­lem to solve than it has ex­pe­ri­enced at al­most any point in the last decade.

We ex­pect the gover­nor and leg­is­la­ture can man­age the sit­u­a­tion with some fis­cal dis­ci­pline and with­out any tax in­creases. It should go with­out say­ing that big tax cuts are off the ta­ble, but this news is no cause for res­ur­rect­ing the gover­nor’s pro­posal to re­form the var­i­ous state spend­ing man­dates. New es­ti­mates from Comptroller Peter Fran­chot’s of­fice sug­gest Maryalnd will col­lect $800 mil­lion less in taxes than an­a­lysts ex­pected over this year and next.

Mr. Ho­gan has long com­plained about the de­gree to which the gover­nor’s au­thor­ity to craft the state’s spend­ing plan is con­strained by man­dates; about 71 per­cent of the state’s bud­get is, ef­fec­tively, on au­topi­lot. We agree that the gover­nor and leg­is­la­ture should eval­u­ate Mary­land’s spend­ing man­dates to en­sure that they re­main nec­es­sary and ap­pro­pri­ate in scope, but the leg­is­la­tion Mr. Ho­gan in­tro­duced in this year’s leg­isla­tive ses­sion to cre­ate a uni­ver­sal lift­ing of man­dates (with some ex­cep­tions) at times when rev­enues are grow­ing slower than ex­pected was crafted in such a way that it would not have achieved its pur­ported in­tent.

What Mr. Ho­gan needs to do is what he and his pre­de­ces­sors have done in such sit­u­a­tions, which is to sub­mit a bal­anced bud­get and pro­pose what­ever re­lief from man­dates that re­quires in sep­a­rate leg­is­la­tion known as the Bud­get Rec­on­cil­i­a­tion and Fi­nanc­ing Act (or, more af­fec­tion­ately, the BRFA). Do­ing that re­quires a ne­go­ti­a­tion be­tween the ex­ec­u­tive and leg­isla­tive branches, but that has rarely posed a prob­lem, even in times of di­vided gov­ern­ment. For all the ac­ri­mony be­tween Mr. Ho­gan and the Demo­cratic lead­ers of the Gen­eral Assem­bly, the ac­tual work on the bud­get dur­ing the leg­isla­tive ses­sion has gone rel­a­tively smoothly. (Their con­flicts over spend­ing have mainly come af­ter the fact.)

This month’s drop in es­ti­mated rev­enues is worse than bud­get-watch­ers had been ex­pect­ing, and it has led to quite a bit of fin­ger-point­ing on all sides. But it’s man­age­able. The one thing the gover­nor and Gen­eral Assem­bly are re­quired to do dur­ing each leg­isla­tive ses­sion is to en­act a bal­anced bud­get, and un­less the sit­u­a­tion changes dras­ti­cally be­fore De­cem­ber, they should be able to do it with­out break­ing a sweat.


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