Maryland and Virginia Take Different Approaches to Difficult Budget Cuts

Monday, September 14, 2009

IN THE FACE of free-falling state revenue in the past 18 months, practically every governor has been forced to adopt a strategy of fiscal management by damage control. Many states have resorted to tax increases, and virtually all have slashed spending; few have managed to get ahead of a curve whose downward trajectory has consistently confounded forecasters. Still, while some states have mostly kicked the can down the road, others have done a better job at making permanent cuts and painful choices. Locally, Maryland is an example of the former; Virginia of the latter.

Maryland Gov. Martin O'Malley (D) has relied heavily on federal stimulus dollars to close projected deficits. Granted, at Mr. O'Malley's prompting, the state has so far wiped out about $735 million worth of spending, the equivalent of about 5 percent of Maryland's $13.4 billion general fund budget for the fiscal year that began July 1. These reductions included the closure of a state-run psychiatric hospital, the elimination of 160 jobs (from a state workforce of 70,000) and reduced spending on health workers who serve Medicaid patients and the developmentally disabled.

Still, the cuts made only a dent and will tide the state over for another month or two, not much longer. By the most optimistic estimates, just $200 million or so of the savings will extend into fiscal 2011, beginning next summer, when Maryland is facing a shortfall projected at well over $1 billion. The picture for the following year, when almost $1 billion in federal stimulus dollars will stop flowing, is even worse. According to the state legislature's research arm, revenue would have to grow by 8.9 percent annually beginning in the current fiscal year for Maryland to meet its projected spending of $16.6 billion in 2012-13. Not gonna happen.

In Virginia, Republicans have criticized Gov. Timothy M. Kaine (D) for overly optimistic revenue forecasts. This is baloney: Virginia has been no worse than other states at anticipating the recession's devastating budgetary toll. In fact, while Virginia faces steep funding shortfalls in the coming years, Mr. Kaine has made more extensive and lasting cuts than many other states.

Unlike Mr. O'Malley, who has tried to minimize layoffs of state workers while relying more heavily on furloughs, Mr. Kaine has laid off 593 employees and eliminated another 336 jobs that were unfilled -- a downsizing of nearly 1 percent of the state workforce. Also unlike Mr. O'Malley, who has been unwilling to curtail spending on higher education, Mr. Kaine ordered extensive spending reductions to Virginia's public colleges and universities. Moreover, Mr. Kaine, in his fourth round of cost-cutting in the past 14 months, announced that Virginia for the first time would roll back the amount it contributed to the pension system for retired state workers. All told, well over $500 million and possibly as much as $1 billion of Mr. Kaine's cuts will extend into the next fiscal year's budget of around $16 billion -- not enough to close the likely deficit, but a decent start.

To his credit, Mr. O'Malley pushed through a tax increase two years ago without which the state's revenue picture would be bleaker than it is. Nonetheless, a day of reckoning is approaching in Maryland, and Mr. O'Malley will not be able to postpone more painful choices for much longer. The Maryland governor and lawmakers will be facing ever more difficult choices -- whether, for example, to raise tuition at public colleges and universities, reduce spending on stem cell research, or force local governments to share the burden of hundreds of millions of dollars in teachers' pensions. And they will be facing those unappetizing choices as they head into the 2010 elections.

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