Maryland v. Virginia: Who’s Got Biggest Government?

There is no doubt that Maryland has a very statist governor, and an equally statist legislature. Two weeks ago I noted that Governor O’Malley has raised taxes in Maryland once every ten weeks since he came into office five years ago. Rather than trying to restrain spending, the governor just can’t get enough revenues for his spendoholism.

But while spend-as-you-go liberals are harmful to the economy, even they deserve credit when credit is due. Or at least a slight not of acknowledgement. Governor O’Malley has done a lot wrong, but he should not be criticized for the errors he have not (yet) made. A good example is the expansion of government in his state. The other day the Washington Examiner reported that Maryland has a less favorable combination of private and government employment than its neighbor Virginia:

Local governments in Maryland are growing thanks to higher taxes banking their payrolls, a trend that bucks the rest of the nation and stands starkly in contrast with downsizing in Virginia, new U.S. census survey data show. The number of people on local government payrolls in Maryland grew by nearly 3 percent — or about 6,000 people — to 220,314 during the year that ended in March 2012, the data released Thursday show. The growth comes while most local governments shrank their payrolls, combining for an average drop of 1.7 percent nationwide. Meanwhile, local governments in Virginia collectively downsized by 1.4 percent, or roughly 4,500 people, to 313,907 total. At the state level, Virginia stayed relatively flat, adding about 200 people to its roughly 125,000 state employees. Maryland’s nearly 87,000 state workers represents a total that’s about 1,600 fewer people than last year.

I am not going to dispute the Census data, but generally I prefer to use the Bureau of Labor Statistics for labor-market data. According to their numbers for July 2012,

  • There were 104,600 state government employees in Maryland and 148,300 in Virginia;
  • Local governments in Maryland had 240,500 employees compared to 365,700 in Virginia.

Since Virginia is a larger state we would of course expect a higher number there. As the Washington Examiner points out, the trend is important – but so is the relation between private-sector and government employment. Private employees pay the taxes that state and local government workers live off (while federal employees get their paychecks from Chinese lenders). If we look at the government employment situation from this perspective, Maryland does not look as bad anymore:

  • In July of 2012 there were 165 state and local government employees in Maryland per 1,000 private employees;
  • In July of 2012 there were 169 state and local government employees in Virginia per 1,000 private employees.

Furthermore, the total number of state and local government employees has grown in Virginia two years in a row, 1.4 and 1.7 percent respectively, while it has been at a virtual standstill in Maryland.

In fairness, local governments in Maryland have indeed expanded their payrolls over the past two years, by almost 4,000 workers. This is a 1.7 percent increase. However, local governments in Virginia have been much harder at work expanding their payrolls: from July 2010 to July 2012 they added 14,900 employees, an increase by 4.2 percent.

The private sector job trend is marginally stronger in Virginia: one percent increase in 2011 and 1.8 percent up in 2012, again measured July to July. As for Maryland, this  is the one number where Governor O’Malley’s tax hiking policies may be having their first effects: from 2010 to 2011 private employers added 1.2 percent to their ranks of employees in Maryland; from 2011 to 2012 they added only one percent.

One of the interesting aspects of this comparison is that there is a lot of interchangeability between the two states. It really does not matter whether your employer is in Maryland, DC or suburban Virginia – you can choose to live anywhere within commuter distance. This makes for sharp competition between the states (the District is not really playing in the same league due to its high crime rate) and almost a live-size laboratory for studies in tax competition. It remains to be seen how far up in the sky Maryland can push its taxes; even though I would not cry wolf to the level that the Washington Examiner does, it is nevertheless worth keeping an eye on the monthly numbers from the Bureau of Labor Statistics. In particular, it is going to be interesting to see the trend in private-sector jobs as the new, high taxes in Maryland begin to take their toll.