State, local governments have painful budget choices ahead
In Ocean City, the mayor and council recently gave preliminary approval to a town budget with a two-thirds larger “rainy day” fund to cover emergencies. Baltimore County Executive Johnny Olszewski Jr. announced an immediate hiring freeze for most of county government. At a virtual taxpayer night conducted by the Baltimore City Council, officials are looking to plug a $42 million hole in the current budget and anticipate at least a $100 million shortfall in the next. And, in the most frightening development of all, Maryland’s comptroller warned Friday of a possible $2.8 billion drop in state tax receipts during the current fiscal year. What do all these events have in common? They are all a result of the coronavirus pandemic and how the accompanying economic downturn is gradually translating into substantially reduced tax revenues for state and local governments.
Call it the third wave of a crisis that began with an ongoing health emergency and than spurred an economic downturn that may prove to be the worst since the Great Depression. Right now, out-of-balance government budgets may seem a minor concern for most Marylanders compared to the first two matters (one’s health and family’s well-being followed by potential loss of employment understandably ranking higher), but it is likely to loom increasingly large with the impact on life from Friendsville to Princess Anne continuing for many months to come. And it is just as certain to test the mettle of elected officials unaccustomed to such budgetary hardship. Lesser past recessions certainly have.
Here’s the problem in a nutshell: Government at every level relies on revenue estimates when planning budgets. More than a year in advance, council, commissioners and county executives anticipate how much the economy will grow, how much the usual taxes (income, sales and property among the larger sources) will rake in and then authorize spending on such broadly popular purposes as paying teacher salaries as well as those of police and firefighters, upgrading transportation (from building roads to filling pot holes) and addressing a host of other small, yet important responsibilities from reviewing development plans to maintaining public parks. The abruptness and jaw-dropping scale of the current downturn could surely never have been anticipated even weeks ago.
Governments have installed some protections such as surpluses and rainy day funds (a balance that is tapped only in the event of an unanticipated emergency) but none is anywhere near enough to cover what’s eventually coming their way. The state government’s reserves might float its general fund obligations a month, for instance. So they have two options but really only one. Officials can cut spending or they can increase taxes. And given how any elected leader who dares pursue a tax hike right now would mean his or her own unemployment courtesy of the ballot box, it’s really just about cutting spending. At first, there will be fat to trim, efficiencies found, public relations campaigns that can be deferred, contracts that can be delayed. Then there are the tougher choices like hiring and pay freezes. And then, as things get bad, the dreaded “f” word — furloughs or unpaid holidays or even salary reductions for government workers.
No one is talking in those terms. Not yet anyway. Washington has tried to help out with its economic stimulus bills that include about $5 billion for Maryland with much of it going toward disaster relief and other specific purposes. Congress and President Donald Trump might yet agree on more. State government may have some fiscal tricks up its sleeve as well, such as allowing local governments to tap Program Open Space land acquisition money, for example, and other “special” funds, and use them for other purposes like K-12 education. But, make no mistake, hard times are coming for the public sector. The smart leaders are the ones who are willing to adopt tough measures early like boosting reserves now rather than emptying their rainy day fund this early. It’s not unlike coronavirus public health measures — the sooner stringent policies are adopted, the less painful the adjustment in the long run. But, alas, planning for the worst isn’t usually the first instinct of politicians who like to be popular and thus delay and delay and delay bad news for as long as possible.
Here’s the final rub: If and when the pandemic subsides, the resulting economic downturn and its effects on local government spending will be felt much, much longer. And there’s simply no getting around that no matter who voters choose to represent them in Towson, Annapolis or D.C. Even Gov. Larry Hogan, currently riding a record high crest of public approval for his handling of the health crisis, may find his popularity greatly diminished by about the fifth or sixth round of state budget cuts to come. That’s the cold reality of what appears to be coming in the year (or more) ahead.