Is Virginia awash in money while Maryland drowns in red ink?
No. A budget analysis by our organizations reveals similar situations but different spins.
Both states had significant balances as they ended the last fiscal year. Virginia’s surplus totaled $545 million. Maryland just announced a $990 million surplus.
While both states gained surpluses, both now face shortfalls as they write their next budgets this winter. When McDonnell boasted, “This is the second year in a row that we have posted a budget surplus,” he was referring to unanticipated revenue and unspent appropriations compared with previous estimates for the year just ended. And when O’Malley told a convention of county officials, “Our projected budget shortfall for 2013 is approximately $1 billion,” he was emphasizing the negative outlook as a way to prepare his state for the tough decisions needed to restore the state’s financial stability.
In fact, Virginia faces an analogous problem, though McDonnell isn’t talking about it. For its upcoming two-year budget cycle, revenue is projected to fall $800 million short of the cost of funding current operations.
How can surpluses and shortfalls exist at the same time? The answer lies in the temporary measures both states used to achieve their balanced budgets. Both relied on federal Recovery Act dollars — more than $3 billion for Virginia and more than $4 billion for Maryland since 2009 — that helped to support education, health care and other core services, and kept cuts and layoffs from becoming even deeper. But this lifeline has ended, and there is no serious prospect that Congress will renew it.
Both states used other temporary measures. Virginia required businesses to remit the state sales taxes they collect early and skipped payments into the state employee pension fund. Maryland used transportation and land preservation funds for other purposes and is issuing bonds to cover some capital expenses usually paid for with tax revenue.
As a result, in both states, the surpluses of the past year will quickly dissipate. Revenue in both states may be rebounding, but it remains far below pre-recession levels. At the same time that needs are growing, the current level of funding in both states reflect four years of intense budget-cutting. In both states, services — from schools, to roads, to medical coverage — are inadequate and deteriorating.
With their budgets roughly the same size — $13 billion in Maryland, $15 billion in Virginia — the states clearly have a lot in common. What’s different, though, is what the two men elected stewards of their states’ economic future will do next. O’Malley has signaled a “balanced approach” that includes revenue instead of relying only on more service cuts. It’s unlikely he is doing this to become popular. Rather, he understands that a cuts-only approach jeopardizes investments in the future and threatens recovery.
McDonnell, on the other hand, is veering off the path followed by past leaders from both parties in Virginia. His refusal so far to consider new revenue might satisfy the anti-government crowd at the moment, but it evades Virginia’s obligations to do its part to provide needed services for its residents and to make sure the national capital region remains a great place to raise a family and start or grow a business.
Neil Bergsman is director of the Maryland Budget and Tax Policy Institute in Baltimore. Michael Cassidy is president of the Commonwealth Institute for Fiscal Analysis in Richmond.
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