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Published on January 5th, 2014 | by Len Lazarick

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Rascovar commentary: O’Malley’s final budget choices will be revealing

By Barry Rascovar

For MarylandReporter.com

O'Malley unveils budget 2013

Gov. Martin O’Malley becomes part of PowerPoint presentation on the fiscal 2014 budget last January. Photo by Jay Baker, MdGovPics

The New Year starts on a positive note for Gov. Martin O’Malley. After years of depressing budget shortfalls and an achingly slow economic recovery, the governor received good news from the Board of Revenue Estimates (BRE) and the state’s Spending Affordability Committee.

The bottom line: Maryland’s budget picture is brightening just as O’Malley prepares in another week to unveil his final spending plan as governor.

But there are cautionary notes attached to those reports warning of risks ahead, especially the unpredictable gridlock in Congress that could lead to a financial crisis over raising the nation’s debt ceiling. Still, the BRE reports “a rising possibility of stronger, more sustainable growth in 2014 and beyond.”

Projections for 2014

The state’s unemployment rate has dropped to 6.4% and is expected to continue inching downward.

Housing starts are projected to rise 14% this year and 26% in 2015. Casino revenues should rise 28% to over $1 billion, thanks to the fall opening of Horseshoe Casino Baltimore.

Gov. Martin O'Malley discusses budget with reporters. Photo by Jay Baker, MdGovPics

Gov. Martin O’Malley discusses budget with reporters. Photo by Jay Baker, MdGovPics

All this prompted the revenue board to project a 4.6% increase in state receipts, which in turn led the legislature’s spending commission to recommend 4% growth in Maryland’s general fund budget.

Will O’Malley use this good news to launch a new spending spree that cements his liberal legacy — and helps his national ambitions? Or will he heed the warning signs and plot an incremental course that doesn’t handicap the next governor?

How other governors acted

There are precedents for O’Malley to consider. Gov. Parris Glendening ignored urgent appeals in 2002 from Lt. Gov. Kathleen Kennedy Townsend to make cuts in his final budget and start closing a projected $1.8 billion deficit.

“Leaving the deficit unsolved further complicated the charge that this government was fiscally irresponsible,” noted Del. Pete Rawlings, the late House Appropriations Committee chairman, in hindsight. It was a major factor in Townsend’s electoral defeat that fall.

On the other hand, Republican Gov. Bob Ehrlich accumulated a $2 billion surplus in the last budget of his term. He hoped to use this as a cushion in his second term.

Budget highlights 2014 gov picsOf course Ehrlich ended up losing to O’Malley in 2006, giving the new Democratic governor a windfall he happily spent.

Years later it is clear that it would have been better to conserve that money for later use as state revenues plunged off the fiscal cliff during the Great Recession.

Reasons for Caution

Here’s why O’Malley and legislators would be wise to take a “go slow” approach in the next budget.

Even with all the good news, fiscal analysts are predicting a $188 million deficit by July and a nearly $400 million deficit the following fiscal year.

Most troubling are new costs.

Ballooning, unbudgeted Medicaid bills ($200 million) could grow further due to unexpected fallout from the disastrous start of Obamacare in Maryland.

The state also must contend with soaring debt costs ($150 million) as the governor continues to push for a higher borrowing capacity, and delayed salary increases ($190 million).

What’s left for successor

O’Malley also should recognize that his chosen successor, Lt. Gov. Anthony Brown, has made a string of expensive campaign promises that cannot be met if O’Malley lets the state budget spins out of control.

Will he follow Glendening’s example and choose reputation-building over responsible budgeting? Or will O’Malley look to Ehrlich’s example and moderate his spending plans so as to leave a manageable budget situation for the next governor?

Those fiscal decisions will tell us a lot about O’Malley’s character as he concludes his term and prepares for entry onto the national political campaign scene.

All of Barry Rascovar’s columns can be found at politicalmaryland.com and www.marylandreporter.com

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  • md observer

    A timely article by Mr. Rascover, who is correct that O’Malley spent the $2 billion surplus inherited from Ehrlich.

    But O’Malley also spent $7 billion of new debt created since he took office (presiding over a 70% debt increase, from $10 billion at July 1, 2006 to more than $17 billion now.)

    The State’s Capital Debt Affordability Committee adopted a couple criteria for assessing whether state debt levels are dangerously high. These criteria also are used by the bond rating agencies:

    · State debt outstanding should be limited to 4% of Maryland personal income.

    · State debt service should be limited to 8% of revenues supporting the debt service.

    The state’s latest CAFR (FY 2012) shows debt as a percentage of personal income is 5.59%. Further, O’Malley has put the state in a position where property taxes (the revenue stream to retire debt and assure the soundness of new bond issues), are $261 million less than debt service costs in fiscal 2014, and are expected to be $579 million less than debt service costs by fiscal 2019.

    Count me as not interested much in the “wish list” of new spending. The state has a genuine debt problem. I would like to hear candidates for the governor’s office address it before Election Day.

    • abby_adams

      Don’t worry, the Gov & legislature won’t consider your opinion abt new debt & spending. In fact, they don’t care what we think or how much we continue to pay. As long as there is one penny remaining, they’ll demand that & run up debt to insure you & I will owe 10 cents more!

  • abby_adams

    Let’s not confuse O’Malley’s “character” with his ultimate dream of being “POTUS”. Like a majority of politicians, he will promise ANYTHING & EVERYTHING to get elected. Ditto for ALL the Dem candidates for Gov in the upcoming election. Until the sheeple voters of MD finally wake up to even more hikes in taxes to pay for political largess, this state will continue down the “Californilization” of a once great state.

  • The American

    can’t wait for Nov 4

  • joe

    Overtaxing the state’s middleclass citizens, the MD Lottery and Casino gambling are not enough loot for Maryland’s Democratic politicians. The next Democratic governors of Maryland will sponsor legalization and taxation of Pot, Prostitution, Naked Mud Wrestling and Roman Gladiator Games to raise more revenue to support their overspending habits!

  • Pudentain

    Need these politicians to act more like successful business owners. You keep a cash reserve for bad times, try to eliminate debt. That part is a no brainer, but most don’t seem to get it. And we the people are clueless, right?

  • UnmatchedProductions

    A note to the reporters here – as you report on the budget, the general assembly session and any references to “structural deficits” – could you please, PLEASE, report them accurately. Every year, everything I read refers to budget deficits, and rarely is it reported that there are no deficits – there is a shortfall compared to the amount the budget will increase.

    So – if this year’s budget is $20 billion (I have no idea what it is, this is an example), and expected revenues are $20.5 billion this year, there would be no deficit. But if O’Malley and his cohorts in the GA want a budget of $21 billion, then they will say there is a “structural deficit” of 500 million. Please report that!

    And, also please report what a “structural” deficit really is. They say these are funds that they are required to spend and budget for. But remember that they are required to spend them – because they wrote the laws and instituted the programs they fund. They have the power to change any of these programs. Don’t let them off the hook. Thanks.

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