Maryland Governor Announces Budget Cuts

The state of Maryland is facing a budget shortfall next year of $1.5 billion to $2 billion depending on who you talk to. Yesterday, Governor Martin O'Malley ordered his cabinet to find $200 million in budget cuts, which could mean layoffs of state workers. Not a bad start to an effort to close the budget gap, but for those of us who live in Maryland, we are getting some mixed signals.

O'Malley's order comes just a couple of days ago signed into law a bill that would actually increase what the state pays contractors for work. O'Malley signed the Living Wage bill, that will force state contractors to pay their workers between $8.50 and $11.30 per hour or lose the state's business. The pay differences are based on county, where DC and Baltimore suburban counties have to pay more than counties in western or eastern Maryland.

So let us do a little math. Let us take a landscaping contractor in Baltimore County (covered by the higher wage), who currently pays his workers $7.50 an hour. I have no idea if this is accurate, but I am sure someone can find out and wouldn't be surprised if it is less than that). The minimum wage that contractor must now pay his employee is $11.30 an hour, an increase of $3.80 an hour. Over an 8 hour day, that increase amounts to $30.40 extra a day and $152 per week. Assuming a two week vacation for that worker, that is an extra $7,600 per year--for one worker. Keep in mind that no contractor is going to absorb that cost, so the artificially higher wage will be passed on to the state and ultimately, the taxpayer--meaning me.

Assuming the average increase per hour rate is $2.00 per hour, the cost to the state will be significant. The state estimates that some 50,000-60,000 workers would be affected by this law, which means that the cost to the state and ultimately the taxpayers would be $200 to $240 million, assuming a $2 average wage increase. The cost under our scenario above, if replicated across the same 50,000-60,000 workers would be $380 million to $456 million per year.

So it is not hard to look a little askance at what the Governor is doing. One thing is for sure, I am expecting higher taxes before I see real reductions in the state's budget.