- Budget Reform /
- Economic & Fiscal Policy /
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- Public Pensions /
- Taxes /
Maryland has a spending problem
Originally published in the Washington Post
Is this the best of times in Maryland?
If you’re part of the state’s education industry complex — the teachers unions, bureaucrats and politicians most eager to serve them — times are good. Thanks to the Kirwan Commission’s recent recommendation that public education “reform” requires an additional $4 billion annually in new education spending, you’re expecting to live pretty high on the hog in future years.
If, on the other hand, you’re a taxpayer or an elected official in one of the already-cash-strapped jurisdictions that will be tapped to pay for this grandiose plan, the Kirwan proposal cannot come at a worse time.
To understand why, we need to admit that Maryland already has a spending problem. Over the past decade and a half, the state’s spending growth far exceeded its economic growth. Between 2004 and 2018, the state government’s total annual expenditures grew by a hefty 108 percent while Maryland’s population grew only 9 percent, income per capita grew only 51 percent, and gross state product grew only 67 percent.
Unsustainable growth of education and Medicaid spending, which together make up 40 percent of the state’s total annual expenditure, drive this trend. This year, Maryland passed a record $7 billion education spending plan and a bill that promises further hikes beyond 2020.
Therefore, the state’s fiscal leaders project a $1.5 billion structural deficit by 2024, but a short-term deficit is only the tip of the iceberg of Maryland’s debt problem. Maryland also owes $50 billion in long-term debts consisting of bond debts and pension debts and other post-employment benefits liabilities.
Now we drop the Kirwan “straw” on the back of the already-straining camel. To fund it, we have two choices: Strip funding from other programs or significantly raise state and local taxes.
The Kirwan plan can be implemented by compromising the state’s ability to reduce its $20 billion pension liabilities, close the Maryland Transit Administration budget gap and rebuild the broken-down Pimlico Race Course.
Alternatively, we could reach deeper into taxpayers’ pockets. To finance Kirwan, income taxes would have to rise by 39 percent, sales taxes by 89 percent and the state’s property tax surcharge by 535 percent. People are already moving out of Maryland, and a rising tax burden would only exacerbate this depressing trend.
Clearly, neither scenario is easy to embrace, either economically or politically; there is likely to be blood on the floor once the legislature convenes in January. That’s why state leaders should adopt a more responsible approach to dealing with budget realities.
Though it’s a noble goal to help Maryland’s children better prepare for an increasingly knowledge-based economy, the state can neither spend money it does not have nor ignore its competitive position vis-a-vis other states’ tax policies. Therefore, to improve the quality of public services in the long run, Maryland must first improve its fiscal health and competitive position by confronting its spending habit.
If Maryland adopts a formal spending limit similar to Colorado’s Taxpayer’s Bill of Rights (TABOR), for example, it would restrict annual spending increases to the sum of inflation plus population growth. This would guarantee that state government spending would not outrun — and weaken — the state’s economy. It would force state leaders to identify their priorities systematically, not privileging some types of expenditures over all others. This would help the budget process to become more cost-efficient and outcome-based.
The logic of spending restraints is simple and immutable. Just as households need to first examine their income before they choose which car or house to buy, state leaders must start with a budget constraint if they are to make intelligent choices about spending alternatives. No household should rationally commit to an array of extravagant outlays and then figure out how to come up with the money. Nor should our elected leaders.
Gov. Larry Hogan (R) should boldly push for spending discipline in the coming Kirwan debates and, ultimately, TABOR-like reform. He has publicly expressed his distaste for the Kirwan plan, calling it “half-baked” and labeling its proponents the Kirwan Tax Hike Commission. He has even started a fundraising campaign to fight against it. Maryland has a lot to gain if Hogan takes that campaign a step further.
After all, a historically deep-blue Maryland elected a Republican governor who promised fiscal responsibility, with the ultimate hope of ending the state’s long-lived budget problems.
In that light, the Kirwan debate is a golden opportunity for Hogan to keep his campaign promises and call attention to the need to install fiscal guardrails on Maryland’s spending highway.
Carol Park is a senior policy analyst at the Maryland Public Policy Institute.