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

Baltimore Sun - - NATION & WORLD -

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.


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