A predictable budget problem
By Marc Kilmer
Examiner Guest Columnist 9/28/08
I can say this as someone who, in both newspaper opinions and in testimony before the General Assembly, predicted that Maryland would collect lower tax revenue than expected and that spending would be higher than anticipated. I am not a psychic. I simply looked at past state spending and the experience of other states and concluded that the path taken by Gov. Martin O’Malley and the General Assembly would end in fiscal problems for the state. Unfortunately, our legislators and governor did not do the same.
For instance, during last year's special session, the cigarette tax was increased. It was evident, based on other states that had raised their cigarette taxes, that this tax would likely raise less revenue than expected. Sure enough, the projected revenue from tobacco taxes for this fiscal year has been revised downward by $18 million.
Likewise, I testified before the special session that expanding entitlement programs like Medicaid and the Maryland Children's Health Insurance Program would be foolish when the state had a deficit and faced an economic downturn was foolhardy. The recession earlier this decade illustrated that when states have economic trouble their spending on programs like Medicaid increases much more than budgeted, while at the same time their revenue declines. But this information fell on deaf ears.
The problem facing the state today is not even that general fund revenue will be declining, as was the case earlier this decade. In both 2002 and 2003, the state collected less general fund revenue than in the previous year. For fiscal 2009, however, the state is projected to see an increase in general fund revenue of a little over $500 million. That is not enough to pay for the spending that has already been budgeted, though, even when one includes other revenue the state receives.
During an economic downturn, the failure to truly restrain spending while at the same time relying on overly optimistic tax revenue projections is a formula for disaster. The state experienced something very similar earlier this decade. This situation was clearly a very real possibility during last year's special legislative session. Only the most optimistic legislators could have thought that the stars would align to pull off their fiscal sleight-of-hand. It is bad public policy to bet that the rosiest economic scenario will be the most likely.
Trying to raise taxes to fix budget problems when the economy is faltering will not work. Spending must be cut. For O’Malley and many legislators in the General Assembly, this is a difficult thing to do. But the reality of the budget situation is one that demands they show true leadership and reduce spending, even if it means disappointing the variety of special interest groups that live off taxpayer dollars.
No one likes someone who says, "I told you so." I am not gloating about being right about the state's budget situation. As a resident of Maryland, I will be living with the problems created by the poor leadership in Annapolis. But I wonder why so many of our elected officials missed something that was quite apparent from looking at the state's fiscal past. It is a sad commentary on the failed leadership of both O’Malley and the General Assembly members.
Marc Kilmer is a senior fellow at the Maryland Public Policy Institute, a public policy think tank based in Rockville.
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