Laslo Boyd: Not So Bad As Expected

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By: Laslo Boyd

If the forecasts from last weekend had been correct, we would just now be digging out from under a mountain of snow. Grateful as we may be that we could get our cars out relatively easily, it is a good reminder that how we react to an event is often influenced in large degree by our expectations about it beforehand.

Or, when you read the title, did you think I was referring to Larry Hogan’s budget?  There’s a good bit of chatter following the formal release of the budget that it, too, could have been much worse.  That reaction, however, would depend on who you are.

For example, state employees, always an easy target of budget cutters, can’t be thrilled to have a pay increase rescinded.  Similarly, for those responsible for providing education to Baltimore City Public School students, the reduction in state aid is a serious problem.

Let’s go back to the beginning.  Larry Hogan took office facing a major challenge in terms of a budget that was out of balance by close to $1 billion.  Outgoing Governor Martin O’Malley did him a great favor, through a vote by the Board of Public Works before he left office, reducing state spending by close to $400 million.

The big problem that Hogan has promised to address is the structural budget deficit that Maryland has faced for many years.  In plain language that means that ongoing spending commitments are greater than anticipated revenues.  Many of those commitments are enshrined in legislative formulas that can only be changed by acts of the General Assembly.

The structural deficit has been exacerbated in recent years by two developments new to the Maryland fiscal landscape.  The state always counted on federal spending to create a cushion for the local economy.  Maryland was, in an expression that was widely used, “recession proof.”  Not only is federal spending down and unlikely to revert to previous levels, but the uncertainty about the national budget as a result of gridlock in Washington places Maryland’s economy at even greater risk.

The second factor is the failure of the state’s economy, and hence of tax revenues, to rebound vigorously from the economic downturn that started in 2007.  If you remember, O’Malley called a special session of the legislature that year to enact new taxes that he believed would resolve the state’s structural deficit permanently.  Tax revenues since then have not lived up to expectations and the deficit is still with us.

That reality has generated an ongoing debate in Maryland as to whether the state has a spending or a revenue problem.  Respondents divide somewhat along the lines of political ideology, but in fact there is a bit of both causes.

That philosophical split impacts how different people approach the challenge of dealing with the deficit.   To what extent should the balancing be focused entirely on the spending side?  And how quickly should the reductions be implemented?

The alternative view is that over time—and the question is how much time—an improving economy will generate more tax revenues and lessen the deficit.

If you believe that substantial economic recovery—and new tax revenues—is a realistic prognosis, then your approach to the budget will include what many refer to derisively as “gimmicks”, temporary expedients to bridge the gap until the new revenues come in.

Governor Hogan has promised to make the state friendlier to business.  That has to mean that he believes he can improve the state’s economy.  Of course, it may improve anyway, just as the national economy is finally beginning to do and he may be the political beneficiary of a development over which he has little impact.

 If you follow that logic, then your approach to the budget needs to be very careful not to undercut important investment in the future of the state.  Will Hogan support or cut two mass transit projects that could be important stimulus initiatives as well as transportation improvements?  Is he going to reduce education spending, or at least reduce the growth of it, just as the world economy is becoming even more focused on “knowledge industries”?

There’s been a good bit of giddiness about Hogan’s folksy manner, his decision to appoint a few Democrats to key positions, and his apparently conciliatory approach to dealing with the General Assembly.  Those are all encouraging signs although it’s still incredibly early to make meaningful judgments.  His reversal on an initial decision to exclude sexual orientation as a protected category reflects a flexibility that will serve him well if it indeed reflects a general operating style.

There are, at the same time, some more troubling aspects of his early days in office.  The pull back of regulations on use of fertilizer on Easter Shore farms demonstrates a continued disregard for the health of the Chesapeake Bay and environmental issues in general.  His cut to Medicaid reimbursement is another of those “obvious” budget cuts that results in negative impact on the poor and on the health of Maryland’s citizens.

Hogan has a tough job in balancing the budget.  One of my New Year’s Resolutions is to treat him fairly, in contrast to the way Republicans have dealt with President Obama.  In that spirit, I am viewing his budget as a starting point for discussion rather than a misguided policy document.    The next three months will show whether that perspective is the correct.

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Laslo Boyd's professional experience includes serving as education advisor to the Governor of Maryland, Acting Secretary of Higher Education, senior administrator in several higher education institutions and university professor.  His work in political campaigns has involved strategic communications, public opinion polling, and development of position papers.  Dr. Boyd has consulted for a wide range of clients in higher education, government, and business.  He has provided political commentary and analysis in both print and electronic media.