Report Ranks Maryland Highest in Mortgage Debt

A March 21 report by WalletHub financial writer Adam McMann ranks Maryland as the top state for mortgage debt increases. The report, "States Adding the Most Mortgage Debt,” is based on WalletHub's comparison of proprietary data for the 50 states from the third to the fourth quarters of 2023.

According to the WalletHub report, Maryland had the largest increase in average monthly mortgage between the third and fourth quarters of last year. During that time span, the average mortgage debt balance in Maryland rose 1.23% to $283,092. Underscoring the significance of that mortgage debt increase, is the report's finding that "no other state had an increase above 1%" and average mortgage debt actually decreased in 17 states during the fourth quarter of 2023.

 

The report states that “Maryland residents also have one of the biggest mortgage balances in general" and that "[t]heir average monthly payment is very high as a result, $2,145." On top of very high monthly mortgage debt, the report points out that "Maryland residents also have to deal with a relatively high property tax rate on their homes." A February 2024 ranking of state property tax rates by WalletHub found that Maryland had an effective real estate tax rate of 1.02%.

 

One common-sense takeaway from Maryland's high average monthly mortgage debt and its real estate tax burden is that Maryland's legislature should resist any future real estate tax rate hikes and it should instead consider providing real estate tax relief for Maryland residents.  

Maryland's Fiscal Condition Improves Under Governor Hogan

Earlier this month, the Mercatus Center at George Mason University released its 2018 edition of "Ranking the States by Fiscal Condition," which analyzes each state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits. 

In the 2018 edition, Maryland ranks 33rd among the states in overall fiscal condition. This is an increase of 13 spots from 46th overall in 2017. Importantly, this report uses data from fiscal year 2016, which is the first full year of Maryland Governor Larry Hogan's term. As Free State Foundation President Randolph May and I have discussed in three different Perspectives from FSF Scholars, Governor Hogan has made commendable efforts to improve Maryland's business climate by eliminating or reducing unnecessary regulations and taxes. (See here, here, and here.)

In the Mercatus report, assessment of fiscal condition is broken down into five categories:

• Cash solvency. Does Maryland have enough cash on hand to cover its short-term bills? Compared to other states, Maryland is cash insolvent, ranking 41st but moving up five spots from 46th in 2017.

• Budget solvency. Can Maryland cover its fiscal year spending with current revenues? Yes, Maryland revenues cover 102% of expenses. This ranks Maryland 27th in the country, moving up twelve spots from 39th in 2017.

• Long-run solvency. Can Maryland meet its long-term spending commitments and will there be enough money to cushion it from economic shocks or other long-term fiscal risks? No, Maryland’s net asset ratio is -1.69 and Maryland ranks 44th in long-run solvency, which is the same as its 2017 rank.

• Service-level solvency. How much “fiscal slack” does Maryland have to increase spending if citizens demand more services? Maryland ranks in the top half of U.S. states at 17th in the country, falling just one spot from last year.

• Trust-fund solvency. How much debt does Maryland have and how large are its unfunded pension and healthcare liabilities? Maryland ranks 17th, moving down three spots from 14th in 2017.

One significant issue Maryland policymakers should address is the state's looming unfunded liabilities. Maryland has nearly $21 billion in unfunded pension liabilities and has a funded ratio of 71%. This means the value of the state’s assets are 71% of the value of the state’s pension obligations. The most effective plan for decreasing Maryland's long-term debt and fixing its fiscal condition goes hand-in-hand with Governor Hogan’s efforts to improve the state's business climate.

By reducing the burdens of taxes and regulations, Governor Hogan's reforms are intended to continue to attract more businesses into Maryland. In turn, this will expand Maryland's tax base, increase tax revenue, and improve Maryland's fiscal condition by diminishing the amount of unfunded liabilities overtime. Moreover, lessening the burden on current and future taxpayers by decreasing long-term debt will stimulate the economy and create more jobs throughout Maryland.

It is fairly clear that Governor Hogan's tax and regulatory reforms are having a positive impact on Maryland's overall fiscal condition. In the first full fiscal year of Governor Hogan's term, Maryland moved up 13 spots in the Mercatus ranking. Based on the achievements that the Hogan Administration has made over the last couple of years in terms of eliminating outdated and unnecessary regulations, Maryland's fiscal health ranking should continue to improve.

In the meantime, the Maryland General Assembly should work harder to collaborate with Governor Hogan's efforts to decrease tax and regulatory burdens. This will have a positive impact on Maryland's long-term fiscal condition.

Maryland’s Fiscal Health Is Poor Even as Business Climate Improves

On July 11, 2017, the Mercatus Center at George Mason University released its 2017 edition of “Ranking the States by Fiscal Condition,” which analyzes each state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits. And CNBC recently released “America’s Top States for Business 2017,” which ranks each state by the attractiveness of its business climate.

Despite Governor Larry Hogan’s thus far commendable efforts to reform Maryland’s business climate, the state nevertheless ranks 46^th in overall fiscal solvency in the new Mercatus Center study, falling five spots from 41^st in 2016. The data used in the Mercatus study comes from fiscal year 2015, which only covers the first six months of Governor Hogan’s administration. So his reform efforts will not be recognized in this study. But it is still important to see how Maryland ranks relative to other states.

In the Mercatus study, fiscal solvency is broken down into five categories:

• Cash solvency. Does Maryland have enough cash on hand to cover its short-term bills? Compared to other states, Maryland is cash insolvent, ranking 46^th and falling three spots from 43^rd in 2016.

• Budget solvency. Can Maryland cover its fiscal year spending with current revenues? Yes, Maryland revenues cover 101% of expenses. This ranks Maryland 39^th in the country moving up seven spots from 46^th in 2016.

• Long-run solvency. Can Maryland meet its long-term spending commitments and will there be enough money to cushion it from economic shocks or other long-term fiscal risks? No, Maryland’s net asset ratio is -1.83 and Maryland ranks 44^th in long-run solvency, moving down one spot from 43^rd in 2016.

• Service-level solvency. How much “fiscal slack” does Maryland have to increase spending if citizens demand more services? Maryland ranks in the top half of U.S. states at 16^th for the second year in a row.

• Trust-fund solvency. How much debt does Maryland have and how large are its unfunded pension and healthcare liabilities? Maryland ranks 14^th, moving up four spots from 18^th in 2016.

Maryland’s unfunded liabilities may be small relative to other states, but they are large relative to Maryland’s current assets. Maryland has a funded ratio of 74%. This means the value of the state’s assets are 74% of the value of the state’s pension obligations. Although 74% is consistent with the national average, Maryland has over $20 billion in unfunded liabilities.

Despite Maryland’s poor ranking in the new Mercatus study, Governor Larry Hogan has done a commendable job starting to transform Maryland’s business climate. As Free State Foundation President Randolph May stated in a January 2017 Perspectives from FSF Scholars, Governor Hogan’s Regulatory Reform Commission has identified specific areas where Maryland can reduce regulatory barriers. Also, in May 2016, Governor Hogan reduced or eliminated over 155 fees, claiming to save businesses and taxpayers over $60 million over the next five years.

These efforts have helped propel Maryland upward in CNBC’s new ranking “America’s Top States for Business 2017.” Since Governor Hogan took office in January 2015, Maryland has moved up eleven spots to 25^th in CNBC’s 2017 ranking. Notably, Maryland currently ranks 4^th in technology and innovation, 7^th in overall economy, 11^th in workforce, and 15^th in access to capital.

Despite the positive direction of Maryland’s business climate, the Mercatus study shows how the decisions of past administrations, along with past legislatures, have created long-term debt and left Maryland with one of the worst fiscal situations in the country. In a couple of years when the data used in the Mercatus study takes into account the reforms made by the Hogan administration, it will be interesting to see whether the improvements to Maryland’s business climate have positively impacted Maryland’s fiscal health.

The most effective plan for fixing Maryland’s fiscal health should go hand-in-hand with Governor Hogan’s reformist goals when he first took office. The Maryland General Assembly should work with Governor Hogan to reduce tax and regulatory burdens. This would enable Maryland to attract economic activity that has migrated over state lines in past years. Creating an economy more conducive to “permissionless innovation” will incentivize entrepreneurs to open up shop in Maryland. This will expand Maryland’s tax base, increase tax revenue, and improve Maryland’s fiscal health by reducing the amount of unfunded liabilities. Reducing the burden on current and future taxpayers by decreasing long-term debt will stimulate the economy and create more jobs throughout the state of Maryland.

The Maryland General Assembly should support Governor Hogan’s efforts to reform Maryland’s tax and regulatory environment and attract more businesses into the state.

Maryland Should Improve Its Fiscal Scorecard

On June 1, 2016, the Mercatus Center at George Mason University released its 2016 edition of “Ranking the States by Fiscal Condition,” which analyzes each U.S. state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pen­sions and healthcare benefits.

Despite recent news that Maryland received positive bond ratings, the state nevertheless ranks 41^st (out of 51 including Puerto Rico) in overall fiscal solvency in the new Mercatus Center study, falling four spots from 37^th in 2015. In the study, fiscal solvency breaks down into five categories:

• Cash solvency. Does Maryland have enough cash on hand to cover its short-term bills? Compared to other states, Maryland is cash insolvent, ranking 43^rd out of 51 and falling four spots from 39^th in 2015.

• Budget solvency. Can Maryland cover its fiscal year spending with current revenues? No, Maryland revenues cover 98% of expenses. This ranks Maryland 46^th in the country as opposed to 44^th in 2015. 

• Long-run solvency. Can Maryland meet its long-term spending commitments and will there be enough money to cushion it from economic shocks or other long-term fiscal risks? No, Maryland’s net asset ratio is -0.19 and for the second year in a row Maryland ranks 43^rd in long-run solvency.

• Service-level solvency. How much “fiscal slack” does Maryland have to increase spending if citizens demand more services? Maryland ranks in the top half of U.S. states at 16. But this is not an improvement from 2015 when Maryland was ranked 11^th.

• Trust-fund solvency. How much debt does Maryland have and how large are its unfunded pension and healthcare liabilities? Fortunately, Maryland ranks 18^th, which is only a slight decrease from 2015 when it was ranked 17^th.

Notably, Maryland’s unfunded pension liability is below the national average and its funded ratio is 100%. This means the value of the state’s assets are greater than the value of the state’s pension obligations. In fact, commendably, Maryland is the only state with a funded ratio of 100%. The national average is 74%.

But when it comes to state spending more generally, Maryland’s total primary debt per capita is $2,880, while the national average is only $2,144. Maryland’s ratio of debt to state personal income is below the national average of 6.0% at 5.3%. In other words, Maryland does not have a revenue problem; it has a spending problem!

A short-term plan for fixing Maryland’s fiscal health should go hand-in-hand with Governor Hogan’s reformist goals when he first took office. By reducing tax and regulatory burdens, as FSF President Randolph May and I discussed in a January 2016 Perspectives from FSF Scholars, Maryland will attract more economic activity that has been migrating over state lines for years. Creating an economy of “permissionless innovation” will incentivize entrepreneurs to open up shop in Maryland. This is the path to improving Maryland’s fiscal scorecard.

Maryland's Small Business Regulatory Climate Ranks Poorly

Over the past two weeks I published two separate blogs that addressed different facets of Maryland’s economic health. Here I want to address another one.

In Maryland Needs to Improve Its Fiscal Health, published on July 9, I referenced a recently released study from George Mason University’s Mercatus Center titled, “Ranking the States by Fiscal Condition.” The study concluded that Maryland presently ranks 37^th among the 50 states with respect to its overall “fiscal health,” based on an assessment of five separate measures of its fiscal solvency. I recognized that Governor Larry Hogan has begun to take some positive steps to improve Maryland’s structural budget deficit, and I urged the legislators to cooperate in a sustained effort to restrain state spending.

In Maryland Needs to Improve Its Regulatory Climate, published on July 11, I commended Governor Hogan’s formation of a new Regulatory Reform Commission, tasked with examining regulations to determine which ones are making it unnecessarily burdensome to do business in Maryland. The establishment of the commission is a welcome step for the focus it brings to the need for regulatory reform.

Now, Wayne H. Winegarden, Ph.D., Senior Fellow in Business & Economics with the Pacific Research Institute, has just released the 50-State Small Business Regulation Index. In a lengthy, detailed report, Dr. Winegarden compares all 50 states based on an assessment of fourteen different factors that impact a state’s regulatory environment on small businesses. Thus, the Index creates a common platform to compare each state’s regulatory burdens on small businesses. Each one of the fourteen regulatory components included in the Index may impact the economic performance of small businesses.

With a No. 1 ranking as the least burdensome and No. 50 as the most burdensome, Maryland ranks poorly, overall, as No. 39. The report shows the ranking for each state for each of the fourteen different components, with some states ranking high with respect to some measures and low with regard to others. For example, Maryland ranks close to the top (No. 10) with regard to having a relatively favorable unemployment insurance rate but at rock bottom (No. 50, shared by others) with regard to the following measures: right-to-work state; alcohol control state; telecommunications regulations; and regulatory flexibility. [Hopefully, Governor Hogan’s newly formed Regulatory Reform Commission can improve Maryland’s performance regarding regulatory flexibility and telecommunications regulations.]

Below are the fourteen specific components that comprise the 50-State Small Business Regulation Index, along with a brief explanation for each ranking factor:

Workers Compensation Insurance

The Index uses the workers compensation costs, adjusted for industry composition, calculated by the Oregon Department of Consumer and Business Services in 2014 to rank the 50 states with respect to the burdens imposed by each state’s workers compensation program.

Unemployment Insurance

The Index uses the estimated employer contribution rates as a percent of total wages calculated by the U.S. Department of Labor for the calendar year 2014 as a proxy for the burdens imposed by each state’s unemployment insurance program on small businesses.

Short-term Disability Insurance Requirements

The Index differentiates the five states that require small businesses to purchase short-term disability insurance from the 45 states that do not burden small businesses with these mandates.

Minimum Wage Laws

The Index uses the prevailing state-wide minimum wage levels to rank the states based on their prevailing minimum wage as of February 24, 2015.

Expanded Family Medical Leave Act

As a proxy for the higher cost burdens on small businesses in the states that expand the FMLA, the Index categorizes the expanded FMLA benefits into one of ten key family leave categories as documented by the National Conference of State Legislatures and the national partnership for women and families.

Right-to-Work Laws

The Index differentiates the 25 states that have right-to-work laws from the 25 states without right-to-work laws.

Occupational Licensing Laws

The Index incorporates three proxies for the stringency and breadth of state occupational licensing requirements: (1) the number of job categories that require a license; (2) the share of workforce that is licensed; and, (3) the share of workforce that is certified.

Land Use Regulations

The Index uses the Wharton Residential Land Use Regulation Index (WRLURI), which is based on a nationwide survey of local land use control environments, to measure the stringency of the land use regulations across the states.

Energy Regulations

The 50-State Index of Energy Regulations serves as a proxy for the impact from each state’s energy regulations on small businesses’ cost structure.

Tort Liability Costs

Due to different state litigation environments, litigation costs vary across the states. To capture the variation in the litigation environment, the Index ranks the 50 states based on a tort liability survey conducted for the Institute for Legal Reform by Harris Interactive Inc.

Regulatory Flexibility

To assess the extent of relief from each state’s regulatory flexibility program, the Index ranks the states based on two criteria: whether the state implements a regulatory flexibility program, and if it does, the size of the small businesses that qualify for regulatory flexibility.

Telecommunication Regulations

To incorporate these regulations into the Index, changes to each state’s telecommunication regulations were evaluated based on each state’s: oversight of services; oversight of pricing; the existence (or elimination) of quality standards; the existence (or elimination) of filing pricing reviews; and, carrier of last resort requirements (a carrier required to provide service to any customer in a service area that requests it at prevailing rates).

Start-up and Filing Costs

To capture these regulatory burdens across the states, the Index relies on a comparative summary of the favorability of state laws.

Alcohol Control States

The Index differentiates the 18 states that are alcohol control states from the 32 states that are not alcohol control states.

*   *   *

Of course, not everyone will agree with the significance, or the weight given, to each of the index components. But most will agree that, on the whole, Dr. Winegarden’s comprehensive study, published by the Pacific Research Institute, provides a good assessment of a state’s overall regulatory climate for small businesses relative to other states.

And most will agree – or should – that with its ranking (No. 39) near the bottom of the states, Maryland has much room for improvement. In order to attract and keep small businesses, Governor Hogan and the Maryland General Assembly should focus on improving Maryland’s regulatory climate.

Maryland Needs to Improve Its Regulatory Climate

Last week, my blog titled “Maryland Needs to Improve Its Fiscal Health” highlighted a new study from George Mason University’s Mercatus Center that determined Maryland ranks 37^th among the 50 states with respect to its fiscal health. As I explained, the study examined five different measures of fiscal solvency in arriving at the overall ranking.

In the blog, I said last November’s election indicated that Marylanders recognized a change of direction was needed to improve Maryland’s fiscal health. And I stated that Governor Larry Hogan already has taken some positive steps to improve the state’s budgetary situation.

At the end of the week came the announcement that Governor Hogan has created a new Regulatory Reform Commission to examine regulations to determine which ones are making it unnecessarily burdensome to do business in Maryland. As Hogan said in announcing the new panel: “For years, over-burdensome and out-of-control regulations were making it impossible for businesses to stay in Maryland.”

It is not clear from the initial reports whether the commission will have any role beyond identifying regulations that it concludes are unduly burdensome or no longer necessary. But the establishment of the commission is a welcome step in any event for the focus it brings to the need for regulatory reform.

Not all regulations are bad, of course. Many serve important purposes, most especially those directly related to protecting public health and safety in carefully targeted ways. But all regulations impose costs upon those they affect, be they ordinary citizens or business. And, this is the important point: these regulatory costs – although “off-budget” – have the same economic effect as taxes.

So, just as reducing unnecessary spending is important to improving Maryland’s fiscal health, so too is eliminating unnecessary or unduly burdensome regulations. The positive economic effect that results from leaving more productive resources in the realm of the private sector is the same in both instances.

Governor Hogan’s new commission, primarily composed of representatives of business interests, might have benefitted – or still might – from inclusion of some academics and public policy advocates well versed in regulatory reform issues. Nevertheless, the Regulatory Reform Commission’s establishment represents another positive step in changing Maryland’s direction and countering its reputation as a state with an increasingly unfriendly business climate.

Finally, whether under the charge or the new commission or some other entity, the state should consider whether – beyond the identification of existing regulations targeted for elimination – more fundamental long-term structural regulatory reforms should be pursued. For example, should there be a “sunset” date for all new regulations requiring that they expire on that sunset date if they are not affirmatively readopted? Should there be a central entity within the executive branch to review regulations before they are promulgated to determine that the projected benefits outweigh the costs and they are not inconsistent with other regulations? Should there be some formalized retrospective review (“look back”) process to assess whether regulations are actually achieving their objectives in the most efficient manner?

Commendably, Governor Hogan has initiated a process to examine Maryland’s existing regulations so that those that are no longer unnecessary or which are unduly burdensome can be targeted for elimination, or at least modification. But in light of the costs imposed by unnecessary regulations – costs ultimately paid by all Maryland consumers – achieving fundamental structural regulatory reform should be the governor’s objective.