Maryland's Boom

Enjoy it while it lasts, because it won't.

LIKE SOME OTHER states, Maryland is enjoying the fruits of an economic boom whose bounty has intoxicated state officials and blurred their vision. A windfall owing much to the rising housing market has flooded the state's treasury with the sort of easy money that seems as if it might last forever. Politicians of both parties, in an election year, are happily spending the excess cash and cutting taxes besides. But it doesn't take clairvoyance to see that the state is digging itself a big hole; within three or four years, spending is projected to outstrip revenue by more than $1 billion a year in a general fund budget of about $15 billion.

Alarms started ringing about Maryland's so-called structural deficit a few years ago, after the state pledged to increase spending on education by hundreds of millions of dollars by 2008 without bothering to identify a funding source. But the alarms softened as the housing market and corporate profits soared. Much as during the late-'90s tech bubble, everyone forgot to worry about what lay beyond the immediate horizon.

The officially sanctioned complaisance manifested itself last month when Gov. Robert L. Ehrlich Jr. (R) and Comptroller William Donald Schaefer (D), rejecting warnings from state Treasurer Nancy K. Kopp (D), voted to cut the state's property tax to 11.2 cents per $100 of assessed value, a reduction of 2 cents. That bit of election-year razzmatazz will save the owner of a $200,000 home all of $40 a year; it will also increase the state's anticipated budget deficits by more than $100 million annually beginning in about two years. At the same time, the state faces sharply higher Medicaid costs as well as a mandate to set aside more money for retirement health insurance for state employees. And in the recently ended legislative session, politicians of both parties backed sharply higher outlays for teacher pensions. Given the bipartisan profligacy, don't be surprised when, a couple of years down the road, both parties revive the justly moribund idea of expanding slot machine gambling.

The binge in Annapolis is echoed in Montgomery County, which is equally flush with housing and non-wage income. County Executive Douglas M. Duncan's budget proposal for the fiscal year starting in July includes an 11.5 percent increase in spending, almost three times the rate of inflation. Mr. Duncan, a candidate in the Democratic primary for governor, has done terrific things in the county, but he may also be risking its fiscal future. In a economic downturn, the county will have few places to turn except to even higher property taxes, having already lately quadrupled the energy tax, doubled the phone tax and maxed out on the income tax allowed by the state, all to finance its spending spree.

Of course, Maryland and Montgomery are vastly better off than states and counties elsewhere in the nation. They enjoy low unemployment, generous rainy-day funds, and AAA status from the bond-rating agencies -- not to mention enormous federal spending as a result of their proximity to the nation's capital. But they suffer by comparison with Virginia, which safeguarded its finances in the long term with a tax increase in 2004 by Mark R. Warner, the Democrat who was then governor. In Richmond, conservative Republicans have moaned about that and will continue to do so until the inevitable economic down cycle hits. Then they will talk smugly about the commonwealth's fiscal prudence and perspicacity, while Maryland officials will be forced to apply the scalpel, painfully, to state spending and revive the taxes they cut in boom times.