Taxes, fees found to be key to state's $2 billion surplus

Budget cuts accounted for 18% of fiscal reversal, analysis shows

General Assembly

February 07, 2006|By ANDREW A. GREEN | ANDREW A. GREEN,SUN REPORTER

Maryland's budget surplus has more to do with tax and fee increases - and a general economic recovery - than government downsizing and conservative management, an analysis by The Sun shows.

Gov. Robert L. Ehrlich Jr. frequently boasts of his administration's success in reversing a fiscal crisis in state government. In nearly every speech he gives, the governor says that in just three years, he turned $4 billion in deficits into nearly $2 billion in surpluses, a turnaround he says is the result of his determination to end the tax-and-spend culture of Annapolis.

A Sun analysis of the figures that form the basis for the governor's assertion, and of the past four state budgets, confirms that Maryland's finances made a roughly $6 billion turnaround from what analysts expected over Ehrlich's first three years in office.

The figures also show that 18 percent of the improvement was the result of Ehrlich budget-cutting. By contrast, 28 percent of the change was the result of tax and fee increases the governor enacted.

Budget-cutting by the General Assembly is responsible for a small piece, and much of the turnaround - about $1.5 billion worth - is the result of sharply increased tax revenues due to the state's hot economy. Ehrlich's transfer to general operations of funds that are supposed to pay for roads, land preservation and other programs was responsible for the rest.

Democrats say the gap between Ehrlich's fiscally conservative rhetoric and the reality of his management became clear this month when he unveiled the biggest budget increase for state programs Maryland has seen in at least 25 years. Despite tight financial times and his much-ballyhooed systematic review of the entire state budget, nearly every state department and agency will spend more money this year than it did when the governor took office.

In fact, the only state department to see its budget cut is the budget department.

"He has not lived up to this perception or notion of being a fiscal conservative," said Sen. Ulysses Currie, a Prince George's County Democrat who chairs the Budget and Taxation Committee. "The big part of the picture is that the economy turned around. ... That has as much if not more to do with where we are now than what the governor has done."

Budget Secretary Cecilia Januszkiewicz said the true measure of Ehrlich's fiscal stewardship comes after considering what might have been. Before he took office, Democrats were gearing up for a major tax increase to fund a historic education spending initiative they passed the year before, she said. But instead, Ehrlich came in, reined in spending growth and trimmed the state work force.

"What do I think about the governor's stewardship? I think he's done a fabulous job," Januszkiewicz said. "You have to look at what was predicted when the governor took office and what actually happened. ... You can't point to simply any one factor, but certainly a leader who is not looking to expand substantially government or government expenditures helps the government coffers."

The $4 billion deficit claim (actually, the numbers the governor's office cited add up to $4.6 billion) doesn't include the last budget Ehrlich is responsible for in his current term - which he released last week. If it did, the deficits could have been pegged at nearly $7 billion instead.

But bringing that year into the equation radically changes the calculations for Ehrlich's role in resolving the deficits, too. Buoyed by a bonanza of tax revenue, Ehrlich proposed a spending increase so large for the budget year that begins July 1 that he has nearly wiped out the cuts of early in his term and erased much of the surplus.

Political cycle

Analysts call that the "political budget cycle," said Roy Meyer, professor of political science and a government budgeting expert at the University of Maryland, Baltimore County.

"You spend a lot of money before elections, people think times are going to be good, and then a couple of years later when the bills come due, they find some spending commitments they made before an election couldn't be financed," Meyer said. "I prefer a more stable path, myself."

According to the governor's office, the source of the $4 billion claim is the report of the General Assembly's Spending Affordability Committee from December 2002, issued after Ehrlich was elected but before he took office.

Analysts who craft those reports try to err on the side of caution, meaning they estimate revenues conservatively and spending liberally. In times of economic downturn, that can lead to dire projections.

That's what happened in 2002. The state was still feeling the effects of recession and the collapse of the stock market and was coming off of several years of large spending increases. Moreover, Medicaid costs were growing rapidly, and the legislature had just passed the Thornton education funding plan that called for more than $1 billion in new spending to be phased in over several years.

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