Structured solution

November 02, 2003

TWO LINES that do not meet define the political landscape of Maryland these days.

The first line trends upward on a slope of about 5 percent. It represents the anticipated growth in state government revenues, assuming an economic recovery.

The second slopes upward more steeply for the next four years - at roughly an 8 percent grade - before leveling a bit. It represents the projected growth in state spending, driven primarily by huge increases in state education funding under the Thornton formula and annual Medicaid cost hikes.

Chart these two lines through 2012, as the state does, and the gap that widens and persists is what's known as a structural deficit, a problem that must be solved with a certain and structured solution.

In Maryland's general fund budget for this fiscal year, a projected $700 million shortfall was met with fund transfers, some spending cuts and some new taxes - but not a fundamental answer to the long-term problem.

It's now crunch time. Next fiscal year's projected budget shortfall is $700 million. Without action, it will grow through 2008 to more than $1.8 billion a year and stay at that level at least through 2012.

Gov. Robert L. Ehrlich Jr. has offered no comprehensive plan to address the full scope of this structural deficit. But with the opening of the General Assembly session in January, time for that sort of heavy lifting by the state's top leader fast approaches.

Maryland does not have the luxury of a simple solution. No single option yields enough revenue to put the state's finances on solid footing. Among the choices:

Legalizing slots, the only option the governor has backed. But that revenue wouldn't come immediately, can't be treated as reliable, and, as we've noted in opposing slots, brings big social and financial costs.

Raising taxes, which we've suggested. One percentage point added to the state's 5 percent sales tax brings in at least $550 million a year - almost meeting next year's shortfall.

Slowing Thornton increases. Legislators acted properly in providing as much as $1.3 billion a year more for schools but were irresponsible in not figuring out how to pay for it. Schools need this money, but halving the rate of increased funding would reduce the budget gap by as much as $600 million a year within three years.

There are other levers: raising some corporate taxes, cutting programs and taking from the state's reserve fund. But for the most part, the above three options, combined in varying degrees, provide the matrix of long-term choices before state leaders.

There's not all that much mystery here. Indeed, a state transportation task force, acting at the behest of the Ehrlich administration, has come up with a similar matrix of options - new taxes and fee increases - to bridge the similarly large projected gap in transportation funding.

So why is the governor leaving it to the assembly to sort through the options when it comes to the structural deficit? If slots and no new taxes are his answer, that's not sufficient: It doesn't raise enough money, is far too simplistic, and, in political terms, is a potentially disastrous example of how even the initial presence of the gambling industry tends to suck all the oxygen out of the room when it's time for debate and leadership.

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