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Maryland’s budget troubles continue into the New Year

Posted By Eileen Norcross On December 17, 2012 @ 1:19 pm In Balanced Budget,Debt,Public Choice,Public Finance,Tax and Budget | Comments Disabled

Each year a committee made up of Maryland state legislators gets together to set a spending growth limit for Maryland’s general fund budget. The Spending Affordability Committee (SAC) [1] has been in place for 30 years. Originally created to avoid instituting a Tax and Expenditure Limit (TEL), the SAC has proven unable to stop the persistent structural defici [2]t which emerged in 2007. This year the SAC recommends a budget of $37 billion [3], one billion more than last year. That’s an increase in spending of 4 percent

In a paper for the Maryland Journal entitled, “The Appearance of Fiscal Prudence” Benjamin Van Metre and I detail the flaws of the SAC [4]process based on our read of the official reports. The main problem with the process is that lawmakers have convinced themselves that the SAC imposes fiscal prudence on the legislature. We find while there is some formulaic guidance in the form of a limit based on the growth in personal income, it only applies to part of  the budget. The SAC also involves policymakers deliberating over spending “needs” while referring to revenue estimates. The result is not a hard limit on spending but a recipe for a budget soufflé. To be fair, the SAC wasn’t designed to be a hard limit. It was built to be flexible.That’s fine if the SAC is clear about its own limitations in setting a spending limit.

What’s interesting is that over the years there’s been a bit of hand-wringing in the SAC reports about fast-growing areas of the budget – the Transportation Trust Fund, Medicaid, and a growing reliance on debt finance [5]. Debt limits are covered by a separate legislative committee, the Capital Debt Affordability Committee (CDAC). But, the SAC’s warnings about debt tiered up with the CDAC’s increase in the debt cap. It leads one to conclude that these two committees are, at best, talking past one another.

Given the recent history of Maryland it’s more likely legislators will continue finding ways to fund “increased needs.” And they will do so by seeking more revenues [6]in the form of new taxes, tax rate increases, and debt.  [7] As one legislator put it with this year’s SAC recommendation, “we’re setting our citizens up for massive tax increases.” [3]

 

 


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URLs in this post:

[1] Spending Affordability Committee (SAC): http://msa.maryland.gov/msa/mdmanual/07leg/html/com/09spend.html

[2] persistent structural defici: http://mercatus.org/publication/marylands-fiscal-slide

[3]  a budget of $37 billion: http://marylandreporter.com/2012/12/14/scripted-spending-legislators-propose-deficit-cut-and-4-budget-hike/

[4] detail the flaws of the SAC : http://www.mdpolicy.org/pressroom/detail/maryland-public-policy-institute-releases-2012-edition-of-the-maryland-journal

[5] reliance on debt finance: http://www.mdpolicy.org/research/detail/marylands-debt-bomb

[6] seeking more revenues : http://www.gazette.net/article/20121017/NEWS/710179206/1124/state-facing-638-million-structural-deficit-in-2014-analysts-say&template=gazette

[7] new taxes, tax rate increases, and debt. : http://www.mdpolicy.org/research/detail/study-question-7-claims-grossly-exaggerated

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