Our Budget Predictions are Coming True

For months, we have been making dire predictions about the state’s budget and its consequences for the counties. Those warnings are now coming true and we will all pay the price.

On March 6, we wrote that state revenue estimates were coming in low and that was “sure to trigger alarm bells in every county government in Maryland.” On April 17, we cited information from the state’s Department of Legislative Services indicating that the state’s budget deficit could range from $200-600+ million annually, with higher numbers associated with a rejection of slots. On July 3, we detailed how economic problems at the state and county levels were creating a “perfect storm” for Montgomery County’s budget. And now the Post reports that Maryland’s budget deficit could be as high as one billion dollars next year.

For the exclusive viewing pleasure of the MPW audience, we reproduce state budget analyst Warren Deschenaux's Letter of DOOM below:




It seems that no matter what the General Assembly does to close the budget gap, the failing economy undoes it. But still the state is required by law to balance its budget. No state legislator I know believes that more tax hikes are an option so that means almost a billion dollars in spending cuts will have to be considered. The Board of Public Works, comprised of Governor Martin O’Malley, Comptroller Peter Franchot and Treasurer Nancy Kopp, may pass some interim cuts but the heavy lifting will have to be done by the legislature. It is a task that nearly all of them dread.

The first target will be any remaining new spending approved during the 2007 special session (such as money to expand health care and the $25 million still allocated for the Chesapeake Bay fund). The next target will be transportation spending, which some legislators suggested cutting as an alternative to last spring’s millionaire tax. Transportation spending reductions combined with falling toll revenues and rising construction costs could devastate the state’s infrastructure needs for years. The legislature would be wise to consider subjecting corporations to combined reporting – an accounting practice designed to prevent them from hiding income in other jurisdictions to escape taxes. But even if the legislature did all of the above, they would still fall well short of plugging a billion dollar hole.

On July 8, we predicted that the legislature would consider passing teacher pension funding obligations, currently paid by the state, down to the counties. At that time, a Montgomery County budget official told me that the county’s share of the obligations would be at least $120 million per year. Since then, the Maryland Association of Counties (MACo) has estimated Montgomery’s share of the obligations at $217 million. If MACo is correct, that would nearly double Montgomery County’s budget deficit next year.

Few Maryland politicians truly embrace any spending cuts, but the state’s potential shedding of teacher pensions carries three particularly difficult problems. First, many counties may not be able to afford the pension obligations, thereby endangering the benefits of some of society’s most important workers. Second, those counties that can afford them may have to raise taxes to pay for them. Taxpayers enjoy no net benefit if they are protected from state taxes only to see county taxes go up. Third, the state’s bearing of teacher pensions is one of the few aid programs that actually favor Montgomery County. Teacher salaries in Montgomery are higher than many other parts of the state because of this county’s steep cost of living. Pension formulas tie benefits to salary levels. So if teacher pensions are sent to the counties, Montgomery will face a bigger burden than perhaps any other jurisdiction.

Many legislators consider the Governor’s refusal to include county aid cuts in his special session budget proposal a mistake. One state legislator recently told me, “The counties are getting fat and happy from state aid.” This view is fairly common in Annapolis. If a state politician tells you that teacher pensions or any other state aid is “off the table,” don’t believe it. Because if Maryland’s budget deficit really turns out to be a billion dollars, every bit of state spending will be fair game.