Maryland's Spending Affordability Committee found itself in a difficult situation. The group of legislators and a few outside experts is supposed to make a recommendation to the governor of how much the budget can increase in the next year without outpacing the growth of the state's economy. But with the economy still weak and the budget in a shambles after the end of the federal stimulus program, the committee would have found itself in the business of figuring out how much the budget should be cut, not how much it should grow. Instead, it took up a novel and more productive approach: setting a target for how much of the state's long-term budget imbalance must be addressed this year, and establishing a framework for measuring that progress.
As laudable as the spending affordability concept is, it has not kept the state budget out of trouble. Former Gov. Robert L. Ehrlich Jr. submitted some budgets that exceeded the cap, but because of the housing bubble, he left the state awash in cash. Gov. Martin O'Malley has stayed consistently below the cap, but because of the recession, the state has been forced to cut relentlessly.
Even the concept of passing a balanced budget has long been meaningless. Each year, the governor presents a plan in which he identifies funds (actual and projected) to cover his estimates of expenses. The legislature makes some trims and approves it. But save for the brief moment after Mr. O'Malley's tax increases of 2007 but before the global financial meltdown, the governor and the legislature have all known that ongoing expenses actually exceeded ongoing revenue and that the ship was staying afloat only because of accounting tricks and fund transfers. The budget may be balanced every year, but it's not sustainable.
On Tuesday, the committee voted to require the governor's budget department and the legislature's fiscal analysts to try to agree on the extent of the problem. Because of all of the midyear budget reductions and the use and then disappearance of federal stimulus funds, it has become difficult to even figure out what is the baseline from which we should measure budget increases or decreases, and the administration and legislature disagree by some hundreds of millions of dollars on the extent of the problem Maryland faces. The two sides are supposed to report on the actual situation by Feb. 1.
Next, the committee set a goal of permanently eliminating a third of the structural deficit — that persistent gap between spending and revenues. The governor can (and surely will) still use one-time cuts and fund transfers to solve part of the budget gap he faces next year, which could be as high as $1.6 billion. But the committee wants at least a third of the solution to be permanent and ongoing.
Some Republicans say that goal is too soft and that next year's budget should be brought into full structural balance. That's probably unrealistic, and even some of the budget balancing plans the GOP offered last year didn't call for that. But eliminating a third of the structural deficit this year would be a real, good-faith effort to bring some rationality to the state's fiscal situation, and if it is repeated, such a gradual approach could eliminate the problem altogether before the next election.
Governor O'Malley is not required to follow the committee's recommendations, and neither is the legislature. But the governor made a politically risky effort to eliminate the structural deficit early in his first term through his package of tax increases and the legalization of slot machines, and he was returned to office this year in a landslide. That should give him the political courage to take up the matter again. His administration has already indicated that it will seek this year to substantially rein in pension costs, and its offer of a buyout for state employees is a small step in the direction of reducing the size of government.
Still, achieving the goal of reducing the structural deficit by a third will be difficult, and interest groups of all kinds are already lining up to protect themselves in the General Assembly session that starts next month. But the interest groups, our political leaders and ordinary Marylanders will need to adjust to a new understanding about what the state can afford. The public and politicians may be willing to swallow some relatively minor tax increases (such as a boost in the taxes on alcohol or gasoline), but the solution is going to have to come almost entirely from spending cuts. It will be painful, but not so painful as what will happen if we try, for one more legislative session, to kick the can down the road.