Hogan’s stopgap cuts
Our view: The $82 million in reductions the governor is proposing will help in the short term but do little to address long-term concerns
The $82 million in general fund budget cuts Gov. Larry Hogan will seek through the Board of Public Works today are less than meets the eye — less in terms of their economic significance, their political significance and their impact on improving the state’s bottom line.
The reductions address September revisions to the state’s projected tax collections, which indicated that the state would end the current fiscal year about $66.5 million in the hole. The issue here is not that Maryland’s economy is falling off the cliff. Even with the revision downward of $365.1 million, tax revenues are projected to grow by 3 percent in the current fiscal year, which is only about a percentage point lower than the average in the period since the end of the Great Recession.
The issue is that the Bureau of Revenue Estimates was overly optimistic in December, when it provided the figures Mr. Hogan used to craft his budget, and again in March, when it provided the General Assembly with the last set of figures they had before finalizing the spending plan for this fiscal year. When the legislature passed the budget in April, they did so based on fiscal projections that indicated Maryland would end fiscal 2017 with an unallocated fund balance of $400 million, in addition to more than $1 billion in the state’s rainy day fund. Had Governor Hogan chosen to spend $80 million the legislature had fenced off for education and other priorities, the state would still have been left with well more than $300 million in cash, at least according to the information available at the time.
The trouble is, the official revenue estimates not only overstated how much money the state will collect in fiscal 2017, they also overstated how much the state would collect in fiscal 2016, to the tune of $250 million.
The Hogan administration has tried to use the current circumstances to blast Democratic legislators as spendthrifts, but the truth is that the legislature can only cut from the budgets he provides, and members did so, if modestly, this year. Mr. Hogan has complained that his budgeting authority is constrained by mandated spending in the budget. Governors have typically sought to deal with that issue by introducing legislation asking for temporary relief from specific mandates in the budget, but Mr. Hogan did not do so this year. Based on the figures he had to work with, there was no need.
There is also nothing unusual about what Mr. Hogan is doing now. Governors routinely go to the Board of Public Works to seek midyear reductions in spending when tax revenues come in lower than expected. Martin O’Malley did it. Robert L. Ehrlich Jr. did it. Parris N. Glendening did it (though perhaps not as much as he should have toward the end of his term). Mr. O’Malley made midyear budget cuts nine times, including a final $205 million in cuts two weeks before Mr. Hogan was inaugurated.
The spending reductions Mr. Hogan is promising aren’t draconian. The largest single cut, $20 million to the Medicaid Gov. Larry Hogan will propose $82 million in general fund budget cuts at today’s Board of Public Works meeting. program, will be offset by swapping in other funds. Public universities and colleges face $16 million in reductions, but most of it consists of abolishing vacant positions or leaving positions open as employees leave or retire. The Department of Juvenile Services will see a $9 million cut because it is sending fewer youth to out-of-state placements than previously anticipated. Similarly, Temporary Cash Assistance for the poor is being cut because of decreased need. State aid for private colleges and universities will still increase in this year’s budget, but $4 million less than previously planned. Even with the cut, funding for the so-called Sellinger program grows by more than 9 percent.
It’s good that the Hogan administration has found ways to deal with the problem without serious impact on state services. The bad news is that the cuts aren’t particularly meaningful in improving the state’s long-term budget outlook. Some are one-time reductions, and others had already been baked into legislative analysts’ assumptions about future budgets. Consequently, they don’t mitigate the projected $340 million imbalance between expected revenues and spending in fiscal 2018 ($500 million if you count mandated contributions to the rainy-day account and overpayments into the state pension system). And there are other risks on the horizon. The 3 percent growth in tax receipts analysts estimate is substantially better than what Maryland managed last year, and economic headwinds like the federal budget sequester remain. We also don’t know what if any deficiencies — that is, greater than anticipated spending — the Hogan administration will encounter this year. This $82 million in general fund cuts is helpful in so far as it goes, but heading into the third year of Mr. Hogan’s term, the state budget situation is about the same as it was when he started campaigning on a promise to restore fiscal order in Annapolis.