Budget Myths


November 30, 1992|By FREDERICK PUDDESTER

Those of us who deal with the state budget welcome idea that may help us with our quandary. Too often, however, scraps of information without proper context assume lives of their own as scapegoats or panaceas for our budget dilemma. Here are six myths about state government and finances:

Myth #1 -- Maryland is a ''tax hell.'' This myth rests on a measurement of the tax bill for a single, high-income family. It did not take into account the taxes paid by the average taxpayer when assessing tax burden. According to the Advisory Commission on Intergovernmental Relations, a truer picture of tax burden takes into account all taxes paid as a percent of income. On this basis, Maryland drops from the top five into the mid-20s in the rankings of the 50 states.

Myth #2 -- Government should act more like a business during the recession. The adoption of certain business practices can promote efficiency. But the notion that government can cut back services during a recession flies in the face of reality. Unlike a business, which must cut back in slack times, government finds its ''business'' taking off during a recession. Caseloads skyrocket in such programs as Medicaid (by 32 percent) and welfare (23 percent). The prison population has soared by 28 percent. In addition, the juvenile justice system is overloaded, unemployment claims have spiraled and the courts are clogged with a backlog of cases. Many of these programs are mandated by the federal government or the courts and cannot be curtailed because of a downturn in revenues.

Myth #3 -- The state has balanced its budget problems on the back of local governments. Unlike many states, Maryland cut local aid as a last resort, not as a first strike. Only after the economic downturn persisted into fiscal 1992 did local aid reductions become a major component of state budget cuts. Still, cuts in local aid represent only about one-third of all reductions -- the same percentage local aid is of the entire state budget. Moreover, what is being cut is not aid itself, but mandated increases required by law. With all the cuts, total aid to local government in this year is still greater than last.

Myth #4 -- The state bureaucracy has not been downsized and should be severely reduced from current levels. The bureaucracy has been downsized significantly over the past two years. The general-fund budget for state agencies is 8.6 percent less than two years ago, even though one budget, public safety, increased along with the increase in prison population. If public safety is excluded, the two-year reduction is 11.5 percent. Many agencies are operating with fewer general-fund dollars than they had four years ago.

The state has eliminated about 4,500 positions in two years, most of them through attrition rather than terminations. Attrition represents a more humane, manageable and cost-effective method of downsizing.

Myth #5 -- Positions may have been cut, but the state payroll has not decreased. The state payroll, both in terms of employees paid and salaries paid, is lower than it was 20 months ago. The regular payroll is down by more than 2,000 employees over that period. In fact, the number of employees paid each pay period stands at the 1988 level. Over the same period, the dollar amount of each payroll has decreased by $4.6 million, or 4.7 percent. Further, average pay per employee is down by more than 2 percent.

It is true that contractual employment increased over the same period. The use of contract workers is a cost-effective and flexible tool used successfully in the private sector. On average, contractuals earn less than half as much as regular employees (many are part-time) and the state is not obliged to pay fringe benefits. Nevertheless, the State Treasurer's Office reports that spending for regular and contractual employees, including fringe benefits, was lower in fiscal 1992 than fiscal 1991.

Myth #6 -- This on-going budget crisis is evidence that the state's finances are not being managed effectively. This myth ignores the reality of the national recession. An extended period of budget problems is not unique to Maryland. Virtually every state has experienced similar problems over the past two years. The ultimate test of effective management is the confidence Wall Street has in our ability to deal with our revenue shortfalls. Throughout this recession, Maryland has maintained its coveted AAA bond rating -- one of only six states to do so. It has done so by quickly identifying its problems and addressing them. The recent experience in California is a stark contrast to the speed in which Maryland deals with its budget difficulties.

Frederick W. Puddester is deputy secretary of the Department of Budget and Fiscal Planning.

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