Md. sees budget reserve for 2006

Ehrlich, lawmakers create cushion for election year

Leaders set aside $400 million

Surprise recovery reveals projections' unreliability

General Assembly

March 27, 2005|By David Nitkin | David Nitkin,SUN STAFF

One number stands out in the $26 billion state budget Maryland lawmakers will approve by the end of the week. It's $400 million.

That's how much unspent money, above and beyond what's required for the state's "rainy day" account, Gov. Robert L. Ehrlich Jr. and the General Assembly have tucked away in reserve in the spending plan for fiscal 2006. Think of it as an election-season gift to themselves that they have put on layaway and will retrieve a year from now.

The fat cushion is not there by accident. Ehrlich proposed it. Lawmakers endorse it. They're looking ahead to next year, and they have planned things so they won't have to raise taxes or engage in a protracted debate over slot machines before facing voters in November 2006.

"It's always good to have a smooth budget in an election year," said Del. Kumar P. Barve, the House majority leader from Montgomery County.

The unprecedented buffer is a testament to the chestnut that good things come to those who wait.

Ehrlich took office in January 2003 facing a $1.2 billion budget gap in the coming year. The future looked bleak. Projections showed that the state's planned spending far outpaced revenues scheduled to be taken in. The gap between the two is called a structural deficit, and fiscal experts say it is created by a legislative mandate for more spending on eduction, as well as fast-rising Medicaid and other health costs.

The governor said that spending cuts and transfers could help close the gap, but that he also needed new revenue from slot machines to eliminate it entirely.

Others - particularly Democrats in the House of Delegates - said the state couldn't afford cuts to its higher education system or to social service programs for the needy. Raise taxes, they said, especially to help pay for a costly public school mandate approved by lawmakers in 2002 without a revenue source to go with it.

Politicians debated, and couldn't reach an agreement. Not on taxes. Not on slots. Certainly not this year, with partisan tensions at a boiling point in Annapolis.

Government inaction

The state budget under Ehrlich was balanced first one year, then the next and now a third, through a combination of raiding funds for land preservation and local road projects, eliminating some state jobs, increasing college tuition and other maneuvers - many of them one-time fixes.

By law, the governor must propose and the state must pass a budget that is balanced; unlike the federal government, the state cannot run a deficit.

Over time, the state's economy improved. Income taxes came in more robustly than expected. People kept buying lottery tickets.

So, through inaction on the toughest choices - be it calculated or accidental - Ehrlich and lawmakers find themselves facing a far easier time than they thought.

Not so dire

"Those of us who were crying Chicken Little appear to have been wrong a little bit," said budget expert Roy T. Meyers, a University of Maryland, Baltimore County political science professor who has been a persistent advocate of Maryland getting its fiscal house in order by eliminating the structural gap.

Maryland's less-than-dire fiscal situation, Meyers said, speaks to the difficulty in projecting revenues and expenses, even one year ahead. "We came out of a recession, and in the last year or so revenues came back," he said.

Maryland is collecting more money than expected in part because of technical tax law changes, Meyers said. Other projections were off because of the difficulty in knowing whether a healthy economy will spin off higher corporate profits or more personal income - which are taxed at different rates, he said.

On the spending side, lawmakers and the federal government have been looking for ways to control health care costs.

Education spending

Still, Maryland is plowing forward with its landmark plan to spend an additional $1.3 billion a year on public education, and to most Marylanders, it probably appears as if the added costs are being absorbed painlessly into the state's spending.

They might be paying higher tuition and higher automobile registration fees since the governor took office. But sales and income taxes have remained stable, and budget cuts have not been noticeable.

The fiscal 2006 budget, which takes effect July 1, will mark the fourth year of a six-year phase-in for the so-called Thornton Plan education spending.

But many lawmakers fear they are short-changing other areas to pay for classroom instruction, such as school construction and mental health.

"Nobody should feel we painlessly solved this crisis," said Barve, the majority leader. "We cut spending everywhere we could."

Sen. Ulysses Currie, chairman of the Budget and Taxation Committee and a Prince George's County Democrat, said he believes more revenues are needed.

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