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Friday, May 15, 2015

Overreaction to Hogan's GCEI Decision Does Not Reflect the Reality of the Situation

In what has become a recurring theme, Democrats and their allies - like the Maryland State Education Association - are overreacting to Larry Hogan's decision to not fully fund the Geographic Cost of Education Index (GCEI) which allocates additional education funds to certain counties. The $68 million he is withholding represents less than 1% of the state's $7.5 billion education budget. In a recent Twitter post, a representative of the MSEA stated that per pupil spending in MD had increased every year of the past 10 years... until now. Problem is, it's not true. According to an annual report issued by the U.S. Census Bureau Maryland's per pupil spending in 2012 was below both the 2010 and 2011 levels. The reference to per pupil funding is clearly part of an effort to get the public to equate per pupil spending with student achievement. But numerous studies have confirmed there's no correlation between spending and achievement.

If I were advising Hogan I would've told him to spend the $68 million for the GCEI, but by no means do I think that his decision to withhold the money will undermine the quality of education in the state. One must consider as well that the withheld GCEI funds total only $68 million out of $7.5 billion in K-12 education spending in Hogan's budget. That's less than 1%. Governor O'Malley funded none of the GCEI in his first year in office and only one-third of it in his second year - and no one questioned his commitment to education. Additionally, Hogan's budget increased overall K-12 spending by 1% over FY 2015, that is the same spending increase contained in Governor O'Malley's budget last year. And again, there was no gnashing of the teeth then. The fact that Governor O'Malley got a free pass to make K-12 funding decisions similar to those made by Governor Hogan suggests that the criticism of Hogan is mostly driven by political opportunism and not true policy opposition.

And let's remember as well where that contested $68 million in GCEI funds came from - the woefully underfunded state employee pension fund. Though the money already in the pension system is untouchable, payments intended for the state pension system, specifically the OPEB (other post-employment benefits), were repeatedly cut by the Assembly in order to free up money for other priorities. Years of treating those intended payments like an ATM helped to create billions in unfunded future obligations. So a few years ago, Governor O'Malley and the Assembly pledged to make it sound via annual supplemental funding via the budget, as well as increased cost sharing and reduced benefits for employees. Then O'Malley and the Assembly failed to make the promised supplemental payments even as employees endured the new costs.

So what does this have to do with the $68 million in GCEI funds? In his budget, Governor Hogan proposed a $150 million supplemental payment to the pension fund and proposed funding half of the GCEI. He also proposed the elimination of some Medicaid coverage and the cancellation of a 2% raise that had been given to all state workers. The Assembly wanted to fully fund the GCEI and the other two measures as well, but because of strict restrictions on their ability to add spending to the Governor's budget they needed to first find the money and then recommend that the Governor spend it. Among other found savings, they decided to take half of the pension supplemental payment, but in doing so they claimed as well that future supplemental payments could be reduced as well. This was crucial as it freed up $2.5 over the next 10 years billion for spending elsewhere. But the decision to reduce the supplemental payments is expected to impose new costs of about $4.5 billion in the next 10 years as the state must make more payments to make the system sound. That equals $2.5 billion that won't be available for other priorities - such as education. Diverting that money, knowing the future costs, was the very definition of short sighted. Hogan has pledge to return the $68 million to the pension fund

Consider as well the context of Governor Hogan's surprise victory in 2014. Maryland had a serious structural deficit problem - ranging from $750 million to $1 billion. Over the past many years the Governor and the Assembly tried to close the gap via increases in sales, income, gas, cigarette, and alcohol taxes. But the deficit persisted. So to meet the balanced budget requirement the folks in Annapolis raided the pension system, the highway trust fund, and the Chesapeake Bay fund - all to achieve single year fixes to the deficit. Governor Hogan campaigned on a promise to truly eliminate the deficit, no more single year fixes by raiding other funds. Taxes in Maryland had been increased already w/o closing the gap, suggesting that the time had come to place the same focus on spending that had been placed on revenue.

Medicaid and education are the state's largest spending obligations - it's hard to imagine how one could address spending w/o education and Medicaid being affected in some way. In the face of all that, a decrease in spending on the non-mandatory GCEI by an amount equal to less than 1% of the state's K-12 budget isn't very severe and certainly isn't unreasonable or an education Armageddon. And it doesn't demonstrate a lack of investment in our children. Governor Hogan did accept the Assembly's request to reinstate the Medicaid spending and the 2% state employee raise - but he said "No" to the GCEI request. In a prior post, I urged Governor Hogan to approve spending the $68 million on the GCEI - mostly as a political calculation intended to foster some goodwill in the Assembly. My colleague David Lublin wrote a piece for his Seventh State blog in which he referred to Hogan's decision as an "unforced error."

David and I agree that this was an unnecessary strategic error, but we clearly disagree with regard to the likely ramifications. As with so many things related to Hogan, Maryland Democrats cannot seem to avoid hyperbolic overreactions that cause no harm to Hogan while undermining their agenda. During the general election the Brown campaign and the state Democratic establishment decided to embrace the strategy of painting Hogan as a radical. They wanted voters to believe that Hogan was a Tea Party Neanderthal who wanted assault rifles on playgrounds and had no respect for women. The portrayal was so ridiculous that in undermined faith in Brown's campaign and boosted Hogan. Then, after Hogan delivered a less than conciliatory State of the State speech (another unforced error) Democrats again overreacted - most notably by holding up confirmation of Hogan's appointees. In the end, the overreaction caused far more harm to democrats than the speech did to Hogan.

Democrats and their allies are now repeating the overreaction mistake. Perhaps the most ridiculous example being the attempt to paint Hogan as someone who would rather jail children than educate them based on the decision by the Board of Pubic works to approve the creation of a youth detention facility so that minors charged as adults will no longer be housed with adult criminals - an incredibly compassionate decision. In recent years, Maryland families have absorbed tax increases as well as stagnant wages. They've tightened budgets and forged ahead. I don't think that folks who voted for Larry Hogan are going to be very bothered by a decision that involves less than 1% of K-12 education and that only benefitted certain counties - especially when Hogan's budget increased overall K-12 spending. The hyperbolic rhetoric over, and overreaction to, his decision to not spend the money simply does not match the reality of the situation. And I think it will again do more to undermine Democrats than it will Hogan.