With a surging economy and rapidly increasing tax coffers, General Assembly leaders decided last night that the state can spend nearly $1.5 billion more next year on public services without raising taxes or using reserve funds.
If Gov. Robert L. Ehrlich Jr. submits a budget next month in line with a recommendation from the Spending Affordability Committee - and governors typically propose at least that much - state spending would increase at its fastest rate in 15 years.
Since Ehrlich's election in 2002, budget shortfalls have provoked confrontations between the governor and the Democrat-led legislature over tax increases and legalized slot machines.
But the governor and legislature might be in a position to use an election-year budget to pay for voter favorites such as school construction and state worker pay increases. Ehrlich's effort to cut Maryland's share of the property tax could also get a boost from the growth in tax receipts - collections are up 13 percent in the first four months of this fiscal year, largely because of surging corporate and personal income tax payments. Sales tax receipts are also up.
The recommendation for an 8.9 percent increase in operating expenses is enough to fund all anticipated spending increases for education, state worker payroll, health care and other services - something that hasn't happened in at least five years.
"This would fully fund the baseline, which is something we haven't been doing lately," said Warren G. Deschenaux, the General Assembly's chief fiscal analyst.
On top of that, the members of the affordability committee expect Maryland will have enough money to boost its rainy-day reserve account by at least $250 million in the 2007 budget year that begins July 1.
Deschenaux and others cautioned that the state's financial future remains clouded by mandated spending increases for education and spiraling costs for Medicaid.
Budget Secretary Cecilia Januszkiewicz said it is unclear whether the 8.9 percent growth rate would be sufficient to pay for all of the state's needs.
"Clearly the budget picture is better than it has been in the last three years," Januszkiewicz said.
But, she cautioned, "there's a lot of increases built in for K-12 education, additional pension payments, Medicaid and health insurance for state employees."
The committee makes spending recommendations based on estimated increases in Marylanders' income and other economic data, with the idea that state spending shouldn't grow faster than the economy.
The 8.9 percent recommendation would push total state spending - including federal funds and other non-tax money - past $27 billion.
But that does not take into account hundreds of millions of dollars in unspent surplus funds from previous years.
The committee said that if the state starts setting aside money to pay for a looming retiree health-care liability of roughly $20 billion, the spending would not count toward the limit.
Last year, for the fiscal 2006 budget, the committee initially recommended a spending increase of 5.7 percent, which amounted to about $850 million, but later increased it to 6.7 percent, or just over $1 billion. That was the largest increase since 2001. The committee has twice recommended growth higher than it has for the fiscal 2007 budget - in 1990 and 1983. In 1992, the committee made no recommendation, and state spending grew by 10 percent.
Ehrlich is not required to heed the recommendations, and last year, for the fiscal 2006 budget, he proposed spending more than the suggestion. The General Assembly can cut from the governor's budget, and during the 2005 session it brought spending roughly in line with the recommendation.
The committee, which is composed of 16 Democratic legislators, four Republicans and four citizen members, approved the committee's report unanimously.
But one of the non-legislators, H. Furlong Baldwin, the former chairman of Mercantile Bankshares Corp., questioned whether the state should be more cautious in such good economic times, to forestall problems when the economy turns sour.
Baldwin said Maryland has benefited more than most states from vast increases in federal spending because of its proximity to Washington, but he said that can't go on forever.
State economic development officials said they believe that job gains from the federal government will accelerate in the coming years as thousands of military positions are transferred to Maryland under the base realignment and closure plan.
More private-sector jobs are expected to follow.
The committee also approved a recommendation that the rainy day fund be increased to 7.5 percent of general fund expenditures. Bond rating agencies recommend a minimum of 5 percent.
Sen. Patrick J. Hogan, a Montgomery County Democrat, said the 8.9 percent recommendation is conservative enough "to prepare for the stormy day, a monsoon."
"We're not talking about a lot of new state programs here," he said.