Monday, March 16, 2009

Meat and Potatoes on the Budget Table

In Wednesday’s (March 11) latest round of revenue write-downs, Maryland tax officials predicted the state will have $716 million less to spend in fiscal 2010 than they had forecast just three months ago. Budget Secretary Eloise Foster summed up the bleak prospects for a new round of budget cuts:

“Everything that was easy was done a long time ago,” Foster told reporters. “We’re now down to meat and potatoes.”

The advanced word on the revenue estimates was so dire – pegging the next year’s general fund revenues at $500 million below the actual take in fiscal 2008 – that the House Appropriations Committee put off its budget cutting decisions until later this week (March 18-20). The committee’s target for what needs to be cut is now more than $700 million, and legislators are looking for even more than that to provide at least a $400 million fund balance (surplus) to cushion against even worse news as the year progresses.

Even before the revenue estimates that serve as the benchmark for its constitutionally mandated balanced budget were officially released, the leaders of the General Assembly were announcing the formation of a legislative task force to look at many of the mandates, formulas and entitlements that I discussed in my March 9 op-ed in the Baltimore Sun.

This not-yet-appointed task force of seven senators and seven delegates – presumably the fiscal committee leaders along with a few token Republicans – will not get to work till this legislative session is over April 13.

Senate President Thomas V. Mike Miller Jr. summed up the stark issues.

“We have to be prepared to make some tough decisions …. in terms of our sustainability and the structural problems that we have in our budget,” Miller said a news conference. “A comprehensive review of state aid to local government will help us prepare for the necessary structural reforms that will benefits of the citizens of Maryland.”

Miller noted that 40 percent of the state budget is spent on aid to counties and municipalities. “We have to make some adjustment about how our money is allocated,” Miller said.

Tax hikes and layoffs of state workers are “off the table,” said House Speaker Michael Busch, who noted that he knew of only one county (Prince George’s) that had furloughed its workers the way the state had done already.

Here’s some of what’s on the table for this meat-and-potatoes work group: state subsidies of county pension costs (up 22% this year); calculation of education funding formulas; revenue structures and capacity in the counties; and tax limitations imposed in some jurisdictions.

There are several significant things about this task force. First, it recognizes that there is long-term “structural” spending problem that was not fixed by the 2007 tax hikes. Two, it plans to tackle some of the spending that has generally been off limits for Gov. Martin O’Malley, the former Baltimore mayor: aid to local subdivisions, teacher pensions and the like. Three, it is not some grand blue-ribbon commission created to produce a fat report, but as Miller referred to it, “a work group” of politicians familiar with the issues and having the power ultimately to propose politically workable solutions.

Lawmakers and governors created this problem by enacting and signing laws that required this spending, and they have the power to fix it.

The severe economic downturn has forced these legislators to face the day of reckoning that the federal stimulus has partially delayed. “Tough times require tough decisions,” Miller said, “and we in the General Assembly are prepared to make them.”

This fiscal mess appears to be a window of opportunity for true budget restraint that will make Maryland government live within its means every year – not just when times are good. “This truly is” such an opportunity for structural reform, the legislature’s chief fiscal analyst, Warren Deschenaux agreed with me in an interview. “I hope we don’t squander it.”

Raising taxes in 2007 was consistently described as “making tough choices.” Now, we’ll have to see if the same legislators are capable of making the “tough decisions” to permanently lower spending to which many interest groups are so fondly attached.