Maryland's Budget Woes

As Maryland's legislative session rolls on toward adjournment next month, the state is coming to the realization that it has a money problem, a problem exacerbated by its tendency to spend money willy-nilly and not think of long term consequences. Part of the problem is the state's long term education funding program, called the Thorton Plan and the explosion of Medicaid spending combine for nearly 70% of the state's budget and they are growing at around 10% per year according to this Baltimore Sun report.

Budget experts from both parties put the blame for teh state's structural deficit on the passage of a income tax cut in 1996 and the implementation of the Thorton plan.

In 1997, Gov. Parris N. Glendening pushed for a 10 percent income tax cut, and five years later, he and the General Assembly approved the landmark Thornton education funding plan.

All other things being equal, if those two things hadn't happened, Maryland would be looking at a $700 million surplus next year instead of a $1.4 billion shortfall.

"We are investing dollars at a faster rate than the dollars are coming in," O'Malley, a Democrat, said recently. "The biggest of these investments has been in education, and we compounded the problem by doing a big income tax cut. At the same time we were headed down the road toward a historic investment related to education; we did a stupid and short-sighted income tax cut."

The problem Maryland faced is that the structural deficits created by these two acts were hidden in the late 1990's by the tech boom, which pumped nearly $2 billion in surpluses that Gov. Glendenning promptly spent on capital projects and land buys. Efforts to mitigate the effects of the tax cut failed in the early part of this decade, but the reality of the problem is that the Maryland General Assembly likes to spend money:

If Maryland hadn't enacted the tax cut at all, its financial problems this decade wouldn't have been nearly as severe. But Deschenaux said such revisionist thinking doesn't jibe with the reality of Annapolis.

"People tend to think that if we just had that money, we'd be fine," he said. "If we had that money, we'd be spending it."

Indeed, said Sen. David R. Brinkley, the minority leader from Frederick County, that has always been the Maryland legislature's problem, dating back to the 19th century when the state couldn't decide whether to subsidize the B&O Railroad or the C&O Canal. The state funded both and promptly went bankrupt.

One of the big problems is that the GOP minority is so small in the legislature that there is no real competition for budgetary ideas. Any proposal put forward by the GOP is fairly easily disposed of by a veto-proof Democratic majority.

But of course, no one objected too strenuously to the Thorton plan, which when fully implemented added nearly $1.3 billion in education spending, education spending is good, right? Well not so fast. First, a great deal of the education spending is not well allocated, going to school systems and capital facility plans that don't match reality. The education spending is not equitably distributed, with far more going to some counties, leaving other hurting for funds despite the growth of those counties. Finally, the education spending is still not paid for, meaning tax increases are likely in a state with a significant tax burden already.

To get out of this jam, three things need to happen. First, the state needs to greatly reduce its spending. Even education, Medicaid, police and the whole raft of rediculous spending the passes for a "budget" from Annapolis needs to be slashed. The General Assembly needs to be put in time out for spending like an heiress with a American Express card and no limit. The General Assembly has to take every sacred cow of spending an put it on the table. The blood may run deep but if fiscal balance is ever to be achieved, the state can't spend money like water.

Second, the tax structure needs to be revamped, not amended or altered, but rewritten from teh ground up. This revamp needs to include changes to the sales tax plan to cover services currently ignored in the current structure. The income tax should be made more reflective of reality. But coupled with smart spending cuts you can actually achieve a tax cut for most Marylanders while revamping the tax code.

Third, pass slots now. Maryland sits sandwiches between Delaware and West Virginia, two states with significant slot operatsion in Dover and Charlestown respectively. These two destinations are raking in cash from Maryland residents and promptly spending it on their states. Keep that money in Maryland. It doesn't take a genius to figure out that West Virginia and Delaware are making money hand over fist from Marylanders.