Thursday, October 30, 2008

Maryland’s Budget Apocalypse

In a disaster movie that never seems to end, the state’s budget is getting even worse. We use the latest documents from the state’s Department of Legislative Services (DLS) to dissect the biggest government collapse since the Weimar Republic.

In September, the state’s Board of Revenue Estimates forecast total general fund revenues for fiscal 2010 (which begins on 7/1/09) at $14.7017 billion. Just one month later, DLS estimated those revenues at $14.4135 billion – a reduction of $288.3 million. That adds to a billion-dollar deficit previously forecast over the summer.

So the Governor and the General Assembly must scrub the budget. What does it look like in broad terms? The general fund (which does not include transportation) is divided into three different categories: aid to local governments, entitlements and state agency spending. Each of those three categories has sub-components as detailed below. Pay special attention to the fourth column from the left (FY 2010), which applies to next year.

Budget cutting demands priorities. One way to do it is to decide what to protect. So suppose you preserve education funding. After all, if Maryland went from 24th to 45th among U.S. states in business tax climate in one year, perhaps we ought to maintain our human capital investments to keep whatever employers choose to remain. The problem is that combined education spending adds up to $7.6773 billion in 2010, or 49% of general fund spending. Suppose you decide to protect healthcare spending. That adds up to $4.1112 billion in 2010, or 26% of general fund spending. Or suppose you decide to protect spending on public safety. That accounts for $1.3952 billion (more if you include some county and municipal aid), or 9% of general fund spending. Suppose you decide to protect all three. Then you have exempted $13.1837 billion, or 83% of the state’s general fund spending, from cuts.

Pure and simple, the state budget pays for education, health and public safety, in that order. These are the services Marylanders expect and demand. And that is why the upcoming budget cuts will be so excruciating. There are no easy or painless cuts to make.

But cut we must. No member of the General Assembly I know, including the most liberal members, believes the legislature will pass tax hikes. And the cuts cannot be temporary – they must be permanent. Why? Because DLS forecasts that the wretched state of the economy will produce gigantic budget deficits well into the indefinite future.

In 2010, DLS estimates a deficit of $1.318 billion, rising to $1.487 billion next year. The deficits will fall to the $800 million-$1 billion range after that. In total, between 2010 and 2014, DLS expects the state to suffer a combined $5.718 billion budget deficit under current revenue and spending projections. And those numbers include revenues from slots. Without slots, the total five-year deficit would rise to $7.539 billion.

All of this leads us to advise the members of each of the following three groups to be careful what they wish for.

1. If you are a conservative, you should think twice about celebrating these spending cuts. They will go deeper than you expect and will damage even your priorities, such as the police.

2. If you are a slots opponent, you may very well rue the defeat of the referendum if the alternative is an extra $1.821 billion in cuts to education and health.

3. And if you are thinking of running for office in 2010, you may regret winning. Because if you do win, this mess will belong to you!