Maryland’s Governor-elect Larry Hogan
certainly has his hands full as he prepares to take office in January. Maryland
tax revenues are expected to be $1.2 billion less than expenditures
over the next 18 months, but this shortfall can be fixed, or at least reduced,
before it adds to Maryland’s long-term debt.
This could be a tall task for Mr. Hogan
since he promised during his gubernatorial campaign to cut at least some of the
various taxes raised under Governor O’Malley. But Barry Rascovar said in a
recent article in the Maryland
Reporter that the task is “easy.” While not necessarily agreeing with
Rascover’s general prescriptions, his suggestion that the Hogan Administration base
the budget on the prior year’s revenues, rather than projections that often
turn out to be overly optimistic, is worth considering. This method should provide
a greater amount of certainty about how much money will be coming in and thus
increase the chances of running a balanced budget. Although Maryland needs to
run a budget surplus in order to decrease its current $48 billion debt, balancing the
budget would at least be a step in the direction of addressing the shortfall.
If Mr. Hogan implements tax cuts as he
promised, the previous year’s tax revenues could be less than the current year’s.
Therefore, economic models could be used to estimate the amount the previous
year’s tax revenues would have been if the Hogan tax cuts were already
implemented. Then, the budget expenditures could be reduced to match that
amount. Cecilia Januszkiewicz, a former Free State Foundation Senior Fellow and
former Secretary of Maryland’s Department of the Budget, wrote a Perspectives from FSF Scholars in March 2008
entitled “The Illusion of
Declining Revenues, Reduced Spending.” Ms. Januszkiewicz said that there is
an illusion within Maryland (that still remains six years later) that tax
revenues are decreasing with each year, but in actuality, it is only the growth
rate of tax revenues that is sometimes decreasing. Therefore, keeping the
reduced budget expenditures constant for a few years while revenues continue to
grow is at least an admirable approach to eliminating the shortfall and lessening
long-term debt.
Maryland’s Spending Affordability Committee
is required “to limit the growth of State spending to a level that does not
exceed the rate of growth of the State’s economy.” Cecilia Januszkiewicz
criticized this “spending affordability” process in a July 2008 Perspectives from FSF Scholars entitled
“Avoiding
Structural Deficits in Maryland: Recommendations for Reform,” because it
does not take into account the decreasing growth of tax revenues. She also suggested
many simple ways to reform Maryland’s budget process such as: requiring fiscal
estimates for each proposed law to be available to the public at least two days
before the first hearing on the legislation. (See here for more valuable
recommendations.)
There are many things
Maryland officials should do in order to balance the budget over the next year
without Mr. Hogan having to break his promise of cutting taxes. Ongoing budget
deficits are detrimental to the economy and society, not only because government
spending slows down economic growth by crowding out private investment, but
also because a deficit today means a surplus will be needed in the future to
offset the debt. This places the burden on future taxpayers, whether they are
currently children, foreigners, unborn, or already paying taxes. Running a
budget deficit is the definition of taxation without representation.
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