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December 16, 2008

It's not the economy, stupid!

Former Ehrlich budget secretary Cecilia Januszkiewicz, whose tenure ended far too soon after I learned to spell her name, is out with a well-timed op-ed in today's Examiner about the role the state's Spending Affordability Committee has played (or failed to play) in managing state budget growth over the years. The committee, which holds its decision meeting today, is supposed to act as a brake on state spending increases, making sure the budget doesn't increase faster than the economy.

She argues that Maryland's budget problems have everything to do with spending and nothing to do with the economy: "Our elected officials would like us to believe that the state's budget problems are because of the dismal state of the economy. The reality is that budget crises are created by making new commitments without any plan to pay for those new commitments even as the state has insufficient resources to pay for its existing commitments." 

There's some truth in that -- she points correctly to the passage of the Thornton education plan without any money to pay for it -- but saying the economy has nothing to do with the state's budget woes is a little hard to swallow. The Board of Revenue Estimates is also set to meet today and is all but certain to write down (again) the amount of money Maryland is expected to collect in taxes. And it's not like Maryland is some crazy exception to the good times everywhere else; dozens of states are now facing similar budget problems, some much worse than Maryland's.

As further evidence of Annapolis' spendthrift ways, C.J. also points to the recent adoption of a committee report on higher education funding in Maryalnd that calls for a $758 million annual boost for colleges and universities. That's also a bit of a red herring in that the chances it will actually pass anytime soon are somewhere slimmer than none. She also ignores the hundreds of millions the state has cut in the last two years -- more than her boss cut during his term -- with state worker furloughs and more cuts on the way.

But she's definitely on solid ground in questioning just how much the spending affordability committee has done over the years to keep spending affordable. As I mentioned in an earlier post, the committee has never recommended that the state budget stay steady or shrink. In the last 25 years, it has never recommended less than 2.5 percent growth and has averaged more than 6 percent.

C.J. writes: "Rather than avoiding deficits or limiting state spending, the spending affordability process has contributed to the creation and perpetuation of deficits. It has provided a false sense of fiscal restraint and has facilitated continued budget growth -- even when structural deficits appear as far into the future as estimates are made."

So when the fiscal wise men of Annapolis meet this afternoon, what's the over-under on how much they think Maryland's budget can grow during the worst fiscal crisis in 75 years? I'd peg it at 3, maybe 3.5 percent.

Posted by Andy Green at 11:15 AM | | Comments (4)


Why the OMalley slant on everything boys?
Just curious.

Well for staters let us deal with the obvious: she probably sent this to the Baltimore Sun and the Sun editorial board rejected it because it breaks with the status quo.

Where are the hundreds of millions O'Malley cut, Andy? Don't tell me you foolishly buy the reversions are cuts. Reversions are just recognized savings in agency budgets that are transfered out to make fiscal year budgets solvent. There is no new money in those sort of situations.

O'Malley's people toy with the numbers and you know it (I'm not saying Ehrlich's people didn't toy with them either). For instance, everyone knows O'Malley claims to have only increased spending a point or two his first year. The reality is that he dipped into the accumulated rainy day fund and used half of it, but that didn't count against his spending. So it looked like he spent far less than he did.

I think you're a smart guy Andy, but I really think you only go to one side for "answers" and that has led you astray to hearing the Rick Abbruzzese take on everything. It is too bad.

True the ecomony is a big slump. I must agree that Thornton has more to due with tough times. As well as the tax hike from previous session over the last two years.

When you pass a bill with no way of funding it. You eventually will have to rob Peter to pay Paul.

However we only have two more years until the next state election for people in Annapolis. Maybe the tough times will make people ask more questions of our political leaders.

Lets hope people will remeber this in upcoming election. Instead of just voting the same people in year after year.

In response to Lance, I might point out a story I wrote in '07 about the very monkeying with numbers you describe:

When Gov. Martin O'Malley began discussing the state budget deficit with a group of businessmen at a Frederick County Chamber of Commerce luncheon last week, he pitched his administration's frugality as the first step in putting Maryland's fiscal house in order.

"We are going to solve it in a number of ways, and in fact, we have already begun," the first-year Democrat told the crowd. "The budget that we introduced and that the General Assembly passed almost unanimously was a budget wherein the size of your state government, spending-wise anyway, grew by only 2.7 percent, compared to 12.5 percent growth the year before. It all happened in that same flurry of getting sworn in and going to inaugural balls and did not get much attention, but our budget grew by 2.7 percent compared to 12 percent the year before."O'Malley's statement, which he has echoed on a number of occasions, relies on figures that budget experts say overstate the impact of his fiscal restraint on the persistent gap between revenues and spending -- as much as $1.5 billion annually -- that is expected to begin next year.

True, spending under O'Malley this fiscal year is projected to grow at a slower rate than it increased in Republican Gov. Robert L. Ehrlich Jr.'s final-year budget, which ended June 30. Recent cuts O'Malley pushed through the Board of Public Works make the contrast even stronger. But the difference is not as stark as the new governor suggests. O'Malley's claim, based on total spending, ignores details about the nature of Maryland's fiscal crisis and about Ehrlich's budget that make a material difference in evaluating how his spending plan compares with his predecessor's, budget experts agree.

When those factors and the recent spending cuts are taken into account, O'Malley increased spending by about 6.4 percent and Ehrlich by about 10.5 percent.

Sen. David R. Brinkley, the minority leader from Frederick County, said he was "rolling my eyes" when he heard O'Malley compare his spending growth with Ehrlich's.

"He was talking apples and oranges, which, in their quest to rewrite history, he tends to be rather free with," Brinkley said. "It was just totally bogus."

O'Malley spokesman Steve Kearney said the figures the governor cites are the most appropriate ones.

"The simplest and clearest way to talk about budget growth is to take this year's budget, subtract last year's budget and figure out the percentage of growth," Kearney said. "That is the percentage the budget has actually grown. When people make budget comparisons, these are almost always the numbers they use."

The question of how much O'Malley restrained spending is important because the governor is using his administration's belt-tightening as a major part of his pitch for higher taxes. He has said that he could not ask voters to pay more to the state before he makes the government as efficient as possible, and his claim about restraining spending is a key part of his effort to convince the public that he has done so.

Unlike Ehrlich, O'Malley submitted a budget that was lower than the limit suggested by the Spending Affordability Committee, a group of legislators and outside experts who estimate how much budget growth the state's economy will bear. However, members of the committee said at the time that they wanted to set a high figure to give the new governor a chance to put his mark on state government.

"I was one who thought perhaps we should probably have been even more conservative in terms of what we did with this budget, but we wanted to work with the governor," said Sen. Ulysses Currie, a Prince George's County Democrat and chairman of the Budget and Taxation Committee. "The governor wanted to do some things. He made commitments during his campaign, and he honored those commitments."

O'Malley derived his numbers from simple comparison of the bottom-line totals for the size of the overall budget. By that measure, Ehrlich increased the budget in his last year from about $26.2 billion to about $29.5 billion, a difference of 12.5 percent. O'Malley's total budget, as enacted by the legislature, increased to about $30 billion, a difference of 1.9 percent, an even starker difference than the governor claims, according to figures from the nonpartisan Department of Legislative Services. The latest cuts bring that figure down to 1 percent.

Budgeting experts inside and outside of state government say the total budget figures that O'Malley is citing are not the best ones to use when discussing the budget shortfall.

The numbers O'Malley is using include both the general fund -- the portion of the budget that is funded entirely through tax dollars and that supports education and other general government services -- and a variety of special funds, such as the state's transportation trust fund, federal grants and other separate pots of money.

The $1.5 billion budget deficit is in the general fund, not the special funds. Cuts in the special funds -- which total $15.4 billion -- don't directly affect the deficit.

Roy T. Meyers, a professor of political science at the University of Maryland, Baltimore County and an expert on government budgeting, said there is some virtue in looking at the whole picture. Ehrlich routinely raided special funds to pay for operating expenses, which made the general fund budget look more flush than it was.

But, he said, counting reduced spending of federal funds can be misleading.

"When you're trying to describe how we're reducing the financing gap that we face, you should not count federal funds that we're no longer going to collect," Meyers said. "That doesn't actually save us any money."

At first glance, the general fund comparison makes Ehrlich look like a much bigger spender than O'Malley. The former governor's final budget increased the general fund by about $1.8 billion for the fiscal year that ended June 30, a whopping 14.9 percent increase, whereas O'Malley's budget only increased that fund by $369 million, or 2.6 percent. The recent cuts bring that figure to $189.7 million, or 1.3 percent.

But that comparison doesn't take into account the fact that Ehrlich's general fund budget included a plan to sock away hundreds of millions in savings.

His general fund budget totaled $14.19 billion, but $738 million of that was, effectively, put into the state's savings account and not spent. O'Malley's general fund is about $14.4 billion, but only $263 million of it goes into savings.

When comparing actual general fund spending from one year to the next, Ehrlich's spending growth drops to 11.6 percent and O'Malley's bumps up to 4.9 percent.

But those figures still don't entirely reflect the impact that two governors' spending plans had on Maryland's budget problems.

The state's shortfall is what's known as a "structural deficit." That means that the state's ongoing expenditures -- things such as education and health care that must be funded every year -- consistently exceed ongoing revenues from taxes and fees.

One-time spending for things such as school construction don't change the underlying imbalance. Ehrlich did a lot of that kind of spending, about $219 million in his final budget. O'Malley, facing an impending fiscal crisis not of his making, did relatively little, $42.5 million.

Factoring out all those one-time costs, Ehrlich increased ongoing general fund spending by about 10.5 percent and O'Malley boosted it by 7.7 percent. The latest round of cuts, approved this month by the Board of Public Works, brought O'Malley's spending increase down to 6.4 percent.

"To me, the best answer is to use the [measure of] ongoing expenditures versus ongoing revenues," Meyers said. "You want to see if things are getting better or if they're getting worse. Frankly, I don't think a one-year comparison of O'Malley's budget growth this year to Ehrlich's budget growth last year is that meaningful compared to the bigger picture of whether over the medium term your ongoing expenditures exceed your ongoing revenues."

Both governors increased spending far faster than state revenues were expected to grow. The 10.5 percent spending increase in Ehrlich's final budget outstripped revenue growth of 3.8 percent. The gap under O'Malley is narrower but still present: Ongoing spending is budgeted to increase by 6.4 percent, but revenue is expected to grow by 4.5 percent.

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About the bloggers
Annie Linskey covers state politics and government for The Baltimore Sun. Previously, as a City Hall reporter, she wrote about the corruption trial of Mayor Sheila Dixon and kept a close eye on city spending. Originally from Connecticut, Annie has also lived in Phnom Penh, Cambodia, where she reported on war crimes tribunals and landmines. She lives in Canton.

John Fritze has covered politics and government at the local, state and federal levels for more than a decade and is now The Baltimore Sun’s Washington correspondent. He previously wrote about Congress for USA TODAY, where he led coverage of the health care overhaul debate and the 2010 election. A native of Albany, N.Y., he currently lives in Montgomery County.

Julie Scharper covers City Hall and Baltimore politics. A native of Baltimore County, she graduated from The Johns Hopkins University in 2001 and spent two years teaching in Honduras before joining The Baltimore Sun. She has followed the Amish community of Nickel Mines, Pa., in the year after a schoolhouse massacre, reported on courts and crime in Anne Arundel County, and chronicled the unique personalities and places of Baltimore City and its surrounding counties.
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