LIKE SOME OTHER immodest governors nationwide who are benefiting from a surge in state tax collections, Gov. Robert L. Ehrlich Jr. (R) is claiming credit for Maryland's revenue windfall, suggesting it is the product of his administration's shrewd fiscal stewardship. Maryland's $1 billion surplus for the fiscal year that ended June 30 reflects "some real talent running state government" and creating jobs, the governor said on Baltimore's WBAL radio.
In fact, the surplus reflects nothing of the kind; it is simply in line with national trends. Forty-two states collected revenue that exceeded their original budget projections for fiscal 2005, often by wide margins, according to a report by the National Governors Association. The stronger-than-expected collections nationwide stem from a spike in corporate profits, a heated housing market and rising sales and personal income, especially from capital gains. Certainly, Mr. Ehrlich has been lucky on the budget, thanks to a strong economy; it remains to be seen whether he will be shrewd.
The early signs are not encouraging. The governor's first reaction to news of Maryland's surplus was to make a vague commitment to cut taxes. But state officials are still projecting a $1 billion deficit by fiscal 2008, which starts in two years. Education spending, which represents more than one-third of the general fund budget, is expected to grow by 10 percent a year; Medicaid, the health insurance program for the poor that accounts for around one-fifth of state spending, is expanding by 6 to 10 percent a year. Just to stay even with the anticipated increases in state spending, Maryland's revenue needs to grow by at least $900 million a year for the next three years, according to Warren G. Deschenaux, chief fiscal analyst of the state legislature's nonpartisan Office of Policy Analysis. And Mr. Ehrlich wants to cut taxes?
Contrast Mr. Ehrlich's risky approach with Virginia Gov. Mark R. Warner's clear-headed response to his state's $544 million surplus for the year. Mr. Warner (D), mindful that Virginia faces major unpaid bills to clean up the Chesapeake Bay, raise education standards and meet rising Medicaid costs, is putting 80 percent of the surplus into the state's rainy-day fund. Since he's leaving office early next year, that money will be available to Mr. Warner's successor, who will need it.
Mr. Ehrlich faces a potentially tough reelection fight next year, and the prospect of a tax cut going into it may be tempting. But he knows better. Facing a swelling deficit and dire projections in 2003, his first year in office, he drove through a property tax increase that now produces $200 million a year in revenue. He has proposed and signed into law other increases in taxes and fees that amount to tens of millions of dollars more in annual revenue, in the full knowledge that Maryland will need that money, and then some, to keep abreast of skyrocketing education and health care costs. And though lately Mr. Ehrlich says that his ceaseless attempts to expand gambling in the state have nothing to do with the worrisome long-term financial outlook, he said just the opposite as a candidate for governor in 2002.
Just a few years ago, at the peak of the high-tech bubble, Maryland enjoyed a $1 billion surplus; when the bubble burst, the surplus rapidly dissolved. As with the tech bubble, no one should expect the current housing boom, which is already showing age, to last forever. When it ends, so will the current jubilation in state capitals and boasts by governors touting their fiscal "talent." Common sense and prudence suggest the current surplus should be husbanded for tighter times ahead, not squandered by Mr. Ehrlich for electoral advantage next year.