Postponing the pain

Sunday, January 24, 2010

GOV. MARTIN O'MALLEY has submitted a budget that unabashedly employs a magician's grab bag of tricks in a good, or at least defensible, cause: maintaining Maryland's core services even as the state tries to claw its way out of the deepest economic crater in 75 years. Despite facing badly depleted tax revenue, Mr. O'Malley (D), who is running for reelection, has avoided further tax increases for the time being while limiting the pain of additional spending cuts and steep layoffs. In short, Mr. O'Malley has presented a defensible blueprint that will provide him with some political cover in an election year. But make no mistake: He has also ducked the tougher structural problems that Maryland, like most other states, is facing.

Give Mr. O'Malley credit for already having tackled one deficit -- the one he inherited from his predecessor, Gov. Robert L. Ehrlich (R). By raising taxes sharply in 2007, Mr. O'Malley paid a political price and handed Mr. Ehrlich, or whoever may be the Republican nominee for governor this year, a stick to use against him.

So it's understandable that Mr. O'Malley has ruled out anything even faintly resembling a tax increase. There will be no increase in the gas tax, although highway funding has shriveled; no change in the excise tax on spirits, which was last raised when "Rock Around the Clock" topped the pop charts; not even a few pennies charged for plastic grocery bags, as the District has done.

At the same time, the governor has resorted to more than $1 billion of one-time accounting gimmicks and quick fixes, as well as some wishful thinking. He would transfer $350 million from a fund that collects localities' income taxes (which will have to be repaid, in $50 million annual chunks, starting in 2012); use $442 million for programs that would otherwise be spent on state construction projects (which will now be postponed); and bank on $389 million in additional federal stimulus funds that may not materialize. On top of all that, the governor -- who has already laid off 400 public employees and cut another 3,100 jobs from the payroll -- is extending mandatory 10-day unpaid furloughs for 70,000 state workers.

The problem is that these are all one-shot deals. What Mr. O'Malley's judicious maneuvering and creative accounting don't solve is the larger problem starting next year and extending to the budgetary horizon. Even though the state forecasts relatively robust (and possibly over-optimistic) revenue growth starting next year, it also projects huge deficits -- $1.5 billion next year and $2 billion or more in the years after that. In an interview with The Post last week, the governor characterized these as "cyclical deficits," suggesting they will vanish when the economy picks up. Not likely, unless he can arrange another dot-com-style boom for Maryland. In fact, Maryland, like many states, faces a structural deficit that will have to be addressed the old-fashioned way -- by a new round of tax increases or much more painful spending and service reductions than even the $5.6 billion he's already cut since 2007, or both.

Maryland has significant advantages, including proximity to the federal government, which has cushioned the recession's impact on employment, and the nation's highest per capita income. One of only seven states with a AAA bond rating, it has a history of prudent financial management, including a large rainy-day fund (Mr. O'Malley has proposed $634 million for the fiscal year starting in July). Nonetheless, in choosing to postpone hard choices and hope for an economic rebound, Mr. O'Malley is deferring pain, not curing the disease.

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