Chewing gum and baling wire

Our view: Gov. O'Malley's budget proposal is held together with transfers and one-time fixes, leaving significant unresolved fiscal problems in the years ahead This article from The Baltimore Sun deserves to be posted and read in it's entirety. Governor O'Malley's solutions to his woefully poor ability to balance Maryland's budget, is to take loans from the feds, which flies in the face of the state constitution requiring a balanced the budget. You can't really balance a budget on loans. It's like taking a second mortgage on your house to pay your mortgage.

Here's the article:

To get beyond all the spin from both sides about the state budget, take a quick look at Appendix F in the back of the budget highlights book Gov. Martin O'Malley released Tuesday. That's where you find the state's general fund summary and a forecast of what is likely to happen to Maryland's finances over the next five years. It is the Rosetta Stone of state budgets.

Here's what it says this year: Governor O'Malley's spending plan would, if all goes according to plan, leave $274 million in the state's bank account at the end of fiscal 2011. That's good. It would also leave the rainy day fund alone, also a fine thing. After that, things go south -- and fast.

The Department of Budget and Management predicts that Maryland will be $1.5 billion in the hole in fiscal 2012, followed by shortfalls of $2.1 billion, $2.2 billion and $2.5 billion. Former Gov. Robert L. Ehrlich Jr. complained that his predecessor left him with $4 billion in out-year deficits, and Governor O'Malley complained that Mr. Ehrlich left him with $3 billion in shortfalls. But with this spending plan, Mr. O'Malley saddles himself or his successor with an $8.3 billion problem. The governor said putting together this budget plan was painful, but it's peanuts compared to what's coming in the future if something doesn't change.

To be sure, those long-term forecasts aren't all that accurate. Governor Ehrlich's problems turned out to be less severe than expected because of the real estate boom, and Governor O'Malley's turned out to be much worse because of the recession. But there's good reason to worry that the state's projections for this year and the four after that are overly optimistic.

For starters, Governor O'Malley's budget relies on $389 million he expects to come from Washington in the form of aid for states struggling with the economic downturn. That was never a guarantee, but after Republicans secured a 41st Senate seat in Tuesday's special election in Massachusetts, giving them enough members to sustain a filibuster, that money is looking less like a safe bet. And for another thing, the governor's plan expects a 3 percent growth in tax collections in the fiscal year that starts in July and 5 percent annual increases in the four years after that. Tax revenues may not be plummeting anymore, and the advent of slot machine gambling will help Maryland's bottom line. But the weakness of the economic recovery casts doubt on how quickly tax collections will rebound.

In fairness, Governor O'Malley has gone to the Board of Public Works again and again to secure program cuts, and he offers more in this proposal. He has furloughed state employees repeatedly, eliminated some 3,500 positions -- about 400 of which were filled -- closed state hospitals, cut aid to local governments and private colleges and reduced Medicaid payments to hospitals. How is it that he still hasn't solved the problem for good?

The answer is that too many of the solutions he has employed are one-time tactics, not long-term fixes. For example, the governor saves $330 million in the fiscal 2011 budget by keeping most aid to local governments funded at the already-reduced level they are at now. But in subsequent years, that aid is expected to grow by 5.9 percent a year. He saves $78 million through continuations of employee furloughs, but that isn't a permanent solution either. He shifts money from special funds, like those dedicated to preserving open space, into the general fund and pays for those programs through the the state's capital budget, effectively borrowing money for them. Because they displace other capital projects, they won't increase the state's debt burden, but nonetheless, Maryland's debt service payments are expected to grow by hundreds of millions of dollars in the future.

Republicans are criticizing this budget as a mere bridge to tax increases after the 2010 election. Their criticism rings a bit hollow, since they have offered few concrete ideas for reducing spending and, in fact, the last budget many of them supported was Mr. Ehrlich's fiscal 2007 proposal, which included the largest single-year spending increase in decades. Still, what comes next is a fair question, and the O'Malley administration hasn't said much about finding a way to fix the structural gap in the state budget.

It will certainly be tempting for Mr. O'Malley's fellow Democrats in Maryland's General Assembly to accept the governor's accounting gimmicks and hope for the best in the 2010 election, but it should be clear to them that Maryland's current tax revenues can't support our present level of spending and won't be able to any time in the near future. It is past time to look at the state government and decide what we can live without. Every program has a constituency, but some are more deserving than others, and we elect our legislators to make those decisions. It is also past time we stopped protecting the alcohol industry and raised beer, wine and spirits taxes to reasonable levels.

In the long term, we suffer a persistent problem because of our tax structure. Income tax revenues, which make up 20 percent of the budget, are extremely sensitive to economic conditions, and the sales tax, the next biggest chunk at 12 percent, doesn't track well with economic growth because it applies almost exclusively to goods rather than services. Efforts to change that have tended to fail in the face of special interest politics, but a wholesale shift in which Maryland reduced the sales tax rate but expanded the levy to apply to all services would help free the state budget from its boom-bust cycle.

Governor O'Malley has been given an extremely difficult hand to play, and an argument can be made that his strategy of using transfers and one-time fixes is better than cutting services. But it can't last forever. Maryland's long-term budget outlook is uglier than it has ever been, and kicking the problems down the road is only going to make them worse.