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