Fiscal Doomsday? In Maryland??

There are many good lawmakers in our state legislatures. But sometimes I wonder what reality they live in, and where they get their news. Take Maryland, e.g., where the state has increased its spending by 14.4 percent in three years. Despite this, the legislators in Annapolis are now crying about a fiscal doomsday scenario where they have to “cut spending”. If this doomsday scenario actually will reduce total state spending in 2012, then I will go to Annapolis and personally congratulate every one of them. But given their track record over the past three years of recession, I highly doubt that we will see anything even close to actual spending cuts in Maryland. From the Washington Examiner:

Resistance to Maryland Gov. Martin O’Malley’s proposal to cap income tax deductions for residents earning more than $100,000 has pushed the General Assembly’s leaders to consider other ways to fill the state’s $1.1 billion budget hole. The state Senate will consider alternative revenue options and cuts in case lawmakers in the majority-Democrat chamber don’t agree to O’Malley’s plan, Senate President Thomas V. Mike Miller Jr., D-Calvert and Prince George’s counties, told reporters Tuesday. Among the plans Miller plans to send to the Senate floor is a “doomsday” plan that balances the budget with more severe cuts than O’Malley has proposed.

A wild guess: these cuts only apply to the state’s general fund. That is the usual trick that governors and state legislators pull when they want to come across as fiscally conservative. If we look strictly at the general fund, the elected state officials in Maryland have indeed been cutting spending: in 2009 the general fund was reduced by $135 million, or 0.9 percent; in 2010 the cut was $911 million or 6.3 percent; the estimated cut for 2011 is $180 million, or 1.3 percent.

Over the course of three years this looks pretty OK. But while the state legislature was busy cutting the general fund  by $1.2 billion from 2008 to 2011, they were equally busy expanding Other Funds spending by $1.3 billion. Essentially, they swapped spending in one bucket of the budget for spending in another bucket.

Adding insult to injury, The Old Line State increased its spending of federal funds by 62 percent from 2008 to 2011. All in all this has expanded the Maryland budget…

  • Every year through the recession;
  • By a total of 14.4 percent in the past three years; and
  • By 6.2 percent on average since 2005.

To make matters worse, while the private sector in Maryland lost 75,700 jobs from September 2008 to September 2011, the state government of Maryland added 4,400 people to its payrolls.

Against this background, it is hard to take seriously the talks about “doomsday” budget scenarios. Frankly, Maryland’s state legislators have no idea what a budget doomsday looks like. If they want to study up on true fiscal doomsday sccenarios, they are more than welcome to take a look at certain countries in Europe.

In fact, they would be well advised to do so. After the 2012 election we may very well start seeing panic-driven cuts in federal spending. When that happens, Maryland will take a hard beating. Its dependency on federal funds has gone from 22 percent of the total state budget in 2008 to 31 percent in 2011. A return to the dollar amounts that Maryland received from Uncle Sam in 2008 would cut away 11.7 percent of the state budget over night. A return to 2009 levels would cut total state spending by 8.2 percent.

These are entirely realistic scenarios that have a lot more in common with a “fiscal doomsday” than anything the state legislature in Maryland is currently contemplating. The only way to avoid these scenarios is to start phasing out federal funds now. It can be done.