One man who's paying attention to the pachyderm

January 07, 2007|By C. Fraser Smith

Maryland's General Assembly convenes this week, hoping it won't have to disturb - or even acknowledge - the fiscal elephant in the room.

Governor-elect Martin O'Malley and his team have no illusions about escaping difficult political decisions, some hard choices, but they are no doubt grateful that Democratic leaders in the Assembly want to give him a moment to catch his breath.

Opponents are saying the new governor just can't wait to raise taxes. Others, with the fiscal health of the state in mind, are saying that something must be done to raise more revenue - the sooner, the better.

Robert R. Neall, the former state senator, state delegate and Anne Arundel County chief executive, is one of the latter. Mr. Neall is also an authority on matters of state finance. His views have not always been happily received by the two major parties - he's been a member of both - or by various interest groups.

But Mr. Neall is free now of those nettlesome constraints that can blind political leaders to the proximate elephant. Not that he was ever unwilling to say exactly what he thought.

He has shared his thoughts recently as a "civilian" member of the state's underappreciated Spending Affordability Committee, an assembly of people who preside over the state's revenue estimates and appetite for spending - hoping to sensibly reconcile the two.

What is needed, Mr. Neall says in a memo outlining his concerns, is a plan for "fiscal recovery," a rebalancing of the aforesaid assets and liabilities, spending commitments on the law books, and tax flow.

Although Gov. Robert L. Ehrlich Jr. offered claims of a surplus and fiscal health, Mr. Neall says the reality is quite different. Maryland faces bracing challenges in at least four major areas:

Retiree health benefits for state workers.

An "alarming" increase in state debt.

The transportation trust fund, which pays for projects business and consumers must have.

The general fund's "chronic" structural deficit: revenue expectations that don't match spending commitments.

"As with all financial problems," Mr. Neall says, "solutions must be found in planning, cash, time and discipline."

They also require political will and an honest presentation of fiscal reality. In somewhat muted fashion, the Assembly's fiscal leadership has been agreeing with Mr. Neall's fundamental premise: Maryland needs more revenue even to pay for the services it has committed itself to provide.

Here's where Mr. Neall's role as private citizen allows him to make observations that his former colleagues might wish to avoid: Retiree health benefits should be "closed to future employees." The cost of covering current retirees has been estimated at $20 billion.

"A wise man once said, `If you find yourself in a hole - stop digging,'" he says.

Beyond that, Maryland is borrowing without due regard to its capacity for retiring the debt. Here, again, he says, the answer is obvious: Find a revenue source that matches the appetite for borrowing - or borrow less.

But "the most vexing problem of all," he says, is the structural deficit: spending that outpaces income. "The year-to-year, hand-to-mouth strategy should be replaced with a view toward the future. The remedies haven't changed since the beginning of time: more revenues, less spending, or a combination of the two."

The need for more money is inescapable. "Only the delusional" would say otherwise, he says.

What would he do?

He would broaden the existing sales tax to the maximum extent possible, at the very least making everything purchasable at retail covered by the tax, including food.

He would also extend the sales tax to as much of the service industry as possible, including but not limited to beauty and barber services, dry cleaning, all repairs, lawn landscaping and swimming pool services.

The idea, as others have said, is to focus revenue-raising on the fastest-growing segments of the economy and to tax those who may currently avoid taxes: tourists and illegal immigrants. Other taxpayers could be given some relief by adjustments in the income tax, he suggests.

Mr. Neall does not expect a unanimous endorsement of his approach. What he hopes for, he said, is focused attention on the real problems.

He appeals to the Assembly leaders for leadership, and to the Spending Affordability Committee for resolve to restore balance and strength to the state's financial house.

If ignored, he says, elephants get bigger.

C. Fraser Smith is senior news analyst for WYPR-FM. His column appears Sundays. His e-mail is fsmith@wypr.org.

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