Rascovar: Hogan’s spending tightrope: economic growth, restrained spending

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By Barry Rascovar

For MarylandReporter.com

Gov. Larry Hogan announces Regulatory Reform Commission Report. Photo by Governor's Office

Gov. Larry Hogan announces Regulatory Reform Commission Report. Photo by Governor’s Office

Larry Hogan Jr. is the ideal governor to take on the difficult task of balancing the need for stronger economic growth in Maryland while at the same time slowing government spending.

Republican Hogan is a committed conservative who gained election by pledging to cut the fat out of state government and lower taxes (eventually).

But Hogan also was elected because he is a pro-business executive intent on slashing business regulation and making Maryland more business-friendly.

The problem is that Maryland isn’t bouncing back strongly from the Great Recession. Tax receipts in Annapolis from consumer-related spending (the sales tax) are still sinking. Taxes from personal income are barely nudging forward.

It’s a sluggish state economy with slow employment growth, little wage growth and new jobs being created at a disappointing pace.

Weak recovery

November’s unemployment report confirmed Maryland’s agonizingly slow recovery.

Since early summer, the jobless rate has come down but remains above the national average. The number of people out of work is largely unchanged over the past six months. New jobs rose just 16,000 in that period.

The situation is far better than the 7.7 percent unemployment of 2010, yet Maryland continues to lag in job-creation.

All this points to the need for a cautious approach in the next state budget. Revenue growth remains modest. Hogan’s cabinet will have to deliver on the governor’s mandate to trim the size of agencies without harming services that aid Maryland’s underclass.

Restraining government expenditures isn’t all good news, though.

Cutting out state jobs and lowering spending can boomerang and end up harming Maryland’s economic recovery.

It gets tricky for the governor.

Large surplus helps

He’s lucky there’s a projected $561 million surplus for next year’s budget. He isn’t likely to dip into that fund to enlarge existing programs as Democrats want him to do.

Indeed, Democratic lawmakers are calling for an expansion of state spending by nearly 5 percent, even though that could be risky.

Hogan’s budget chief assures us the governor will be well under the Democrats’ affordability limit.

But how do you hold down government spending while simultaneously pumping more dollars into jobs and economic growth?

It can be done.

Hogan needs to take one important step: Turn that $561 million surplus into capital spending to build worthwhile projects.

Jobs and growth

By using surplus cash in this way, Hogan can create good-paying jobs in the construction trades and stimulate growth through the purchase of construction-related goods and services.

Using cash instead of state bonds serves another important purpose. It relieves pressure on Maryland’s costly capital bond program and lowers the state’s expenses not just in 2016 but for the next 15 years.

Paying cash for $500 million worth of new state buildings, rather than issuing bonds, is just what the state needs right now.

A large and continuing pay-as-you-go state construction program would eliminate a huge amount of future debt. It would trim Maryland’s long-term structural operating deficit by a substantial margin.

There’s an added bonus in a large “pay-go” construction program if it is focused on buildings that can lead to long-term economic growth.

Hogan can fortify the Baltimore area’s importance as a generator of health and technology advances (and jobs) by supporting a third health-sciences research tower at the University of Maryland Baltimore; a life sciences building at UMBC, and a behavioral and social sciences building at Morgan State University.

Constructing a $100 million bioengineering building at the University of Maryland College Park would do the same thing in the Washington suburbs.

Spurring economic growth

A cash investment of roughly $300 million in these science-related structures would be a wise use of the surplus – no interest payments or principal payments in future years.

The economic-development potential tied to such research and education-related buildings could spur job growth in key industries for years to come.

Hogan is walking a tightrope in trying to trim state government’s size and expenses while simultaneously enhancing Maryland’s economic-growth prospects.

If he uses the state’s projected surplus strategically, he can achieve equilibrium that might achieve both goals.

Barry Rascovar’s blog is www.politicalmaryland.com. He can be contacted at brascovar@hotmail.com.

  • Dale McNamee

    Barry,
    Somehow,you missed the number of businesses that closed or moved out of Maryland during the 8 year O’Malley regime…

    Taxes, fees,regulations drove them out so it stands to reason that Maryland’s rebound is weak…

    And government spending to help construction is still government spending and I feel the same way with any “government stimulus” of any industry…

    Remember, Obama’s “Stimulus” ? I don’t remember what it accomplished regarding putting people back to work with “shovel ready jobs”, except that Obama got a chuckle and a chortle about its failure…

    There,was plenty of spending in Maryland over the past 8 years of overspending and over taxing ( remember the 40 taxes and fees raised by O’Malley ? I do, as does everyone who paid them )…

    Also, the national economy hasn’t grown that much when you do some research into the numbers…

  • charlie hayward

    Accounting is a dry and technical subject; incomprehensible to the masses. Maryland doesn’t have $561M to spend on capital projects. In fact, it has negative spare cash and nothing in the rainy day fund on the accrual (generally accepted) basis of accounting.

    Maryland’s budget which the legislature will consider beginning next month is an estimate of cash receipts and disbursements arising from FY 17 programs and activities. The FY 17 budget excludes receipts and disbursements to be made during FY 17 which correspond with current assets and liabilities arising from prior years and reported on the state’s balance sheet. These assets and liabilities will net to at least negative $10 billion when Comptroller Franchot issues the FY 15 audited financial statements next month.

  • higheredadvocate

    Investing in higher education — through either public funds or private investment — is a wise expenditure as it has historically led to greater economic growth. Since Word War 2, about two-thirds of all GDP growth in the nation is attributable to investments in research (mostly on the public side). As Maryland emerges from the Great Recession and moves to further establish its leadership in biomedical sciences, utilizing available capital to construct the facilities that you outlined makes a lot of sense. The best part of your idea Barry is that it would have broad bipartisan support. And that is something worth celebrating in Maryland.

  • “State Jobs” are not real jobs, they are a form of glorified welfare for people who should be working as janitors and cleaning ladies. If most of the state jobs are cut then taxes on all sorts of productivity can be eliminated and thus there will be more productivity and wealth for people who actually EARN it. What a novel concept. Bottom line is end socialism now! NO more government schools and no more fake welfare jobs for the 80 IQ crowd.

  • I’m not sure there’s any great call for more state office buildings, but there is a need for more biotech development space and people (and probably a few other industries), including the creation (and funding) of research and development incubators and apprenticeship programs. I think this will also build partnerships with higher education, including community colleges, and create a higher skill level in Maryland’s labor force. Those people will earn higher salaries (it works in Europe, where more than 80 percent of the people who complete an apprenticeship program are hired at high-paying, middle-class jobs). This would then provide additional tax revenues as these workers earn income and buy things in the state.