The bottom line on fiscal claims

A balanced budget without new taxes, but deficits loom

Maryland Votes 2006

October 13, 2006|By Andrew A. Green | Andrew A. Green,Sun reporter

When Gov. Robert L. Ehrlich Jr. unveiled his budget proposal in January, he stacked in front of him the three fat volumes from his first spending proposal, their covers printed in red, the color accountants use to indicate debt. Next to them were three noticeably slimmer volumes from the final proposal of his term. This time, the covers were black.

Ehrlich usually isn't so subtle in making his point. Four years ago, he became Maryland's first Republican governor in a generation with the promise to bring fiscal discipline to state government.

Now, in nearly every speech of his re- election campaign, he says he succeeded in turning around the state's finances without breaking his promise not to increase taxes.

FOR THE RECORD - A headline on Page 1A of yesterday's editions of The Sun erroneously said that Gov. Robert L. Ehrlich Jr.'s administration had balanced the budget "without new taxes." The Ehrlich administration has not raised state income or sales taxes, but it did increase the property tax rate and impose new fees.
The Sun regrets the error.

"We've closed a $4 billion structural deficit and produced a $2.3 billion surplus - a $6.3 billion turnaround in three fiscal years," Ehrlich said recently. "We killed $7.5 billion in new taxes. We reduced state personnel by 7 percent. We protected our AAA bond rating, and we tripled our rainy day fund, which is now $1.4 billion."

But those figures don't tell the whole story. While Ehrlich has the numbers to back up his claims, so do others who say that Maryland's fiscal health is no better than it was four years ago.

"When the last gubernatorial election occurred, the state was facing a structural deficit in the medium term, and it still is," said Roy T. Meyers, a former Congressional Budget Office analyst and now a political science professor at the University of Maryland, Baltimore County. "It's gotten worse."

By law, the state government cannot run a deficit, so the shortfall figures that Ehrlich refers to are estimates of future gaps between revenues and spending that will have to be filled.

When Ehrlich took office, fiscal analysts did predict big deficits, and the state balance sheet now shows a surplus in the current budget year. But the same projections that warned of deficits when Ehrlich took office predict more red ink ahead - about $3.1 billion for whomever is elected governor in November.

And that doesn't count the $20 billion cumulative deficit that the state faces to cover retiree health costs, something the next governor will have to report to bond rating agencies.

Over the past four years Democrats in the General Assembly proposed tax increases that, if enacted, would have cost Marylanders $7.5 billion by now. Democrats paired some of those increases with tax cuts, but Ehrlich doesn't count them in his calculations.

None of that became law, but Ehrlich had little direct role in stopping it; he vetoed about $600 million worth, and the Democratic leaders of the Assembly killed about $6.9 billion in new taxes. Most of the bills never got out of committee.

The number of people who work for the state government is down (8.2 percent since Ehrlich took office). But government spending isn't. Ehrlich increased general fund spending by 32 percent over the past four years, 1 1/2 times more than his predecessor, Gov. Parris N. Glendening, did in either of his two terms.

And the state has nearly three times as much money in reserves as when Ehrlich took office. But Ehrlich's budget plan calls for spending half of it next year, a move that would drop Maryland's reserves below the level that Wall Street demands for states with AAA bond ratings.

Ehrlich's chief of staff, James C. "Chip" DiPaula Jr., a former state budget secretary, said Maryland is unquestionably on better footing than it was four years ago. The deficits projected now are a function of conservative revenue estimates, he said, but the problem in 2003 was immediate.

"When the governor was inaugurated on Jan. 15 almost four years ago, he had to fix a half- billion dollars worth of deficits that day, plus $2 billion for the coming year," DiPaula said. "We've come a long way."

But independent budget watchers say the difference is not so great.

"We're really back where we were four years ago. We were looking at a $1 billion structural deficit then and we're looking at a $1 billion structural deficit now," said Stephen Elmore, director of the Maryland Budget and Tax Policy Institute, a nonpartisan think tank. "We have this fundamental problem that our ongoing revenue sources, the ones year after year we can rely on, are insufficient to cover our ongoing spending commitments."

That problem has been apparent for at least a decade but no one in state government has made a real attempt to fix it, according to an analysis published this week by the Maryland Public Policy Institute, a free-market-oriented think tank.

"Maryland actually suffers from twin deficits: a structural deficit and a leadership deficit," the analysis says. "Both the executive branch (including the current and past administrations) and the legislature seem unwilling to make the tough choices necessary to balance limited resources with spending priorities, and instead have relied on temporary fixes to plug the breach."

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