How much can Maryland afford at a time of furloughs?
Taxes are in the tank. The state government is set to furlough employees for the first time since 1992. And more cuts are supposed to be on the way. Against that backdrop, we'll have a bit of a surreal exercise next week: A committee that will decide how much the state budget can grow next year.
The Spending Affordability Committee is scheduled to hold its annual decision meeting next Tuesday and, if history is a guide, it will decide that economic conditions warrant a small increase in state spending. The idea is the committee, made up of legislators and a few outside experts, figures out how much the state's economy is growing and sets a benchmark for spending so that theoretically, the budget doesn't expand faster than that.
The committee has been making reports since the 1983 legislative session, and it has never recommended growth of less than 2.5 percent. Over the course of that time, the recommendations have averaged 6.24 percent. In a sense, the committee has done what it is supposed to do: Over the last 25 years, the recommendations have always amounted to spending of between 7 percent and 7.6 percent of Marylanders' personal income, a pretty narrow band of variation.
But in another sense, they're pretty limited. The recommendations don't include all spending. (Higher education, for example, isn't included). The governor is not at all bound by them (O'Malley so far has kept his proposals under the mark, though Ehrlich often did not), and they bear no direct relation to the state's actual budget situation. Just becuase the economy is expected to grow by a certain amount doesn't mean that tax receipts will. The committee has recommended healthy spending growth at times when the Department of Legislative Services has predicted big deficits, as it does right now.
And then there's another limitation: The board is a political creature and makes political decisions. The legislature tries hard not to approve budgets above the spending affordability mark. But in years when that would mean making big (and unpopular) cuts to the governor's appropriations, they've been known to reconvene and, effectively, move the goalposts. That happened a couple of times under Ehrlich when the housing bubble was swelling state coffers. The committee gave him fairly generous benchmarks, and with revenues coming in heavy, he exceeded them. Rather than change spending to fit the benchmark, the committee twice changed the benchmark to better fit the spending. In 2005, it bumped the initial recommendation up from 5.7 percent to 6.7 percent, and in 2006, it increased the target from 8.9 percent to 9.6 percent.
I remember going to the meeting two years ago, shortly after O'Malley was elected but before he took office. Everybody in the room knew that the state's budget was in trouble, and people were already clamoring for the new governor to make fixing the state's long-term structural deficit the focus of his first session. I figured we'd be looking at a recommendation of 4, maybe 5 percent. The committee discussed the tough times ahead and approved a benchmark of 7.9 percent, well above the historic average. The explanation? The Democrats who controlled the committee said they wanted to give the governor some room to make good on his campaign promises.
So what's the point? Well, there was one year when the committee decided not to make a recommendation at all. The legislature and governor came in a month later and pushed through a budget that grew a whopping 10 percent. That was 1992. Long-time state workers now contemplating another round of furloughs remember how well that one turned out.
