The imaginary surplus

Our view: Maryland may close the last budget year $300 million in the black, but that's scarcely cause for celebration — or more government spending

August 10, 2010

In Annapolis, few words in the English language are as abused as the term "budget surplus." Case in point: the noises being made in recent days by some public employee unions that a slight improvement in tax revenues ought to end up in the pockets of state workers.

Their target is the fund balance — the alleged surplus — left over in the fiscal 2010 budget that ended June 30. It takes time for the state to close out its books, but it appears Maryland will end up $300 million in the black, which is as much as $150 million greater than expected.

Such found money is certainly a good thing. It's the result of higher second-quarter sales tax and income tax withholding revenues, both signs of a modest economic recovery. In the context of a $32 billion state budget, it's a relatively paltry sum, however.

Most important, it's no surplus — at least not in the traditional sense of the word. To suggest it's a surplus is like saying your checking account has a $1,000 surplus on July 30 while ignoring the $1,200 mortgage payment that's due Aug. 1. It's more like a cash flow anomaly that momentarily holds off a sea of debt.

State employees are frustrated (as well they should be) by several years without pay raises and two years of furloughs that have essentially represented cuts to their salaries. But for unions like AFT Healthcare-Maryland to suggest that the "surplus means that state employees can be compensated for the sacrifices they made sooner than expected," as a recent statement claims, represents a rather breathtaking departure from reality.

First, there's the matter of the current fiscal 2011 state budget that assumed the federal government would be providing Maryland with $389 million more in Medicaid funds this year. The $26 billion local aid bill approved by Congress Tuesday provides closer to $280 million for Maryland, so most of the "surplus" evaporates right there.

But it's really worse than that. In fiscal 2012 (the budget year that begins July 1, 2011), state government analysts project a budget deficit of about $1.6 billion, or 10 times all the extra tax revenue that's been discovered so far.

Maryland can't continue to cut public employee wages forever, but at the moment, the state can't afford not to continue to do so. Even with an economic recovery, some serious choices will have to be made to either reduce government services or raise taxes. It's clear the days of federal bailout money are swiftly coming to an end.

Unions aren't the only ones misrepresenting Maryland's budget reality. The two leading candidates for governor have, too. Instead of trying to put differing spins on the past eight years, former Gov. Robert L. Ehrlich Jr. and current Gov. Martin O'Malley need to explain how they plan to address the budget deficit that is expected to present itself when either takes office.

This is a problem that is not unique to Maryland. Indeed, economic conditions here are better than in most states. But if the national economy worsens, the state's will, too, and voters can be assured there will be no talk of budget surpluses then, real or imagined.

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