Instead of Railing Against Hogan's Budget, Assembly Democrats Should Focus Efforts on Reforming the Process

It's abundantly clear that most Democratic members of the Maryland General Assembly are not pleased with major elements of Governor Hogan's proposed budget. The most contentious issues include a significant reduction in the rate of increase for spending on K-12 education and the elimination of a promised 2% cost of living increase for state employees. House Speaker Michael Busch and Senate Budget Committee Vice Chair Richard Madaleno have been among the most vocal opponents of the budget. Numerous Democrats have pledged to fight Hogan's budget.

But their pledges and their passions amount to next to nothing. There is precious little that any Democrat (or Republican) in the Assembly can do to substantively change Hogan's budget. Maryland adopted an executive centered budget process via a constitutional amendment it 1916 and ever since the General Assembly has been without the power of the purse. According to the constitution of Maryland, the Assembly cannot increase spending in the governor's budget and it cannot move funds around in an effort to increase funding in one area by reducing it elsewhere. All the Assembly can really do is reduce the amount of spending proposed by the governor.  The Assembly can introduce legislation to provide funding for programs - but only if the legislation identifies a funding source (e.g. raising taxes). Certainly, members of the Assembly can work with Hogan and try to convince him to introduce a supplemental budget that provides more funding for programs they value, but failing that, Hogan's budget will stand.

If Democrats in the Assembly really want to make a difference they will work to support SB 660, sponsored by Senators Madaleno, Guzzone, and Manno.  The bill would undo a constitutional amendment that has long outlived it's usefulness. The key section in the state constitution can be found in Article 2, Sec. 52 (6):

(6) The General Assembly shall not amend the Budget Bill so as to affect either the obligations of the State under Section 34 of Article III of the Constitution, or the provisions made by the laws of the State for the establishment and maintenance of a system of public schools or the payment of any salaries required to be paid by the State of Maryland by the Constitution thereof; and the General Assembly may amend the bill by increasing or diminishing the items therein relating to the General Assembly, and by increasing or diminishing the items therein relating to the judiciary, but except as hereinbefore specified, may not alter the said bill except to strike out or reduce items therein, provided, however, that the salary or compensation of any public officer shall not be decreased during his term of office; and such bill, when and as passed by both Houses, shall be a law immediately without further action by the Governor (amended by Chapter 373, Acts of 1972, ratified Nov. 7, 1972).

So in Maryland, the General Assembly is allowed to amend the budget to increase or decrease appropriations for the operation of the General Assembly or the judiciary, but it all other cases it may only reduce or eliminate spending. This is simply ridiculous! It's hard to imagine anything more counter to the concept of representational democracy than a legislature without the power of the purse. In no other state are legislators so irrelevant to the budget process. In roughly half of the states, governors are tasked with developing a budget (much like the president), but that budget is then subject to revision by the legislature. In the other half, the governor and the legislature share the responsibility of making the budget.

How did we wind up with such an executive-centric process? We overreacted to a budget crisis. Maryland was faced with a huge deficit in 1916 and the blame fell squarely on the shoulders of the General Assembly. Our solution? Strip the Assembly of its budget power and hand it all over to the governor. We see how well that worked out. Our ongoing struggles with structural deficits make clear that executives are not any better at budgeting than are legislators.

It's time for Maryland to undo the overreaction of 1916. Instead of offering what are largely hollow pledges to "fight spending cuts," legislators should instead focus on an amendment to the state constitution that would restore the legislature's proper role in the budget process. SB 660 would restore the legislature's role while still respecting the power of the governor. The legislation is far from perfect, especially with regard to the line item veto restrictions that it would place on the governor, but it's a good start.

And no, I'm not proposing this because there's a Republican governor or because I agree with those who would have you believe that Hogan's budget is a draconian overreach. I'm proposing this reform for the same reason I support redistricting reform, because both proposals would boost accountability and representation - two essential ingredients for democracy (unfortunately, none of the redistricting reform legislation introduced thus far is worth discussing).

** I'd like to add that I think Republicans in the Assembly should line up in support of this reform as well. There have been 2 Republican governors in the last 4 decades in Maryland. In most circumstances the GOP is totally shut out of the budget process. If the Assembly actually played a meaningful role then the GOP could gain opportunities to have a role as well. And keep in mind, the GOP made historic gains in the 2014 election. In the Senate, they GOP is 5 seats away from being able to filibuster legislation, thereby earning an automatic seat at the bargaining table. There are 4 Democratic Senators who won with less that 52% of the vote and another 4 or 5 who won in districts carried by Larry Hogan. At present, the MD GOP is one or two election cycles away from being a full-fledged minority partner in governing in the General Assembly. Wouldn't it be better to be a minority partner with the ability to influence the budget as opposed to a minority partner forced to wait for the next Republican governor? 

O'Malley's Budget Would Jeopardize Economic Recovery

Now is not the time to introduce significant and regressive tax increases on working families, nor is it the time to lose ground on education equality by shifting costs to economically unequal counties.

Last week Governor O'Malley unveiled his FY 2013 budget.  As with all prior years, O'Malley had to deal with a structural deficit - this time amounting to roughly $1 billion of the budget's $14 billion total. With the exception of a 2007 special session O'Malley has opted to bring the budget into balance every year through spending cuts and one-time transfers from special funds. Even in the 2007 special session of the Maryland General Assembly the $800 million in new revenue generated by taxes on businesses and individuals were were coupled with $500 million in spending reductions. All told, O'Malley has cut spending by $7.5 billion during his tenure - a commendable accomplishment during very lean times.

For FY 2013, O'Malley continues to make cuts - roughly $600-800 million depending on the math - but decided as well that the time was right for more tax increases, what O'Malley describes as a balanced approach. I do not disagree with the need to consider additional sources of revenue, unfortunately O'Malley's concept of "balance" is anything but balanced. O'Malley proposes capping deductions for singles making more than $100,000 and couples making more than $150,000. Estimates are this would impact the top 20% of wage earners in the state - so this tax increase is not targeted at the top 1%, 5% or 10% - it hits deeply into the middle class in a very high cost of living state.

The capping of tax deductions is not the worst offender, however. Though the income tax provisions would work to make Maryland's income tax structure more progressive (a good thing) it is offset by several proposals that would be especially harmful.

O'Malley has proposed an end to a decades old practice of the state covering the cost of teachers' pensions by beginning a steady shift of that responsibility to the counties. Under the proposed budget $239 million in teachers' retirement costs would be shifted to cash-strapped counties. The governor's budget offsets some of the cost transfer by having the state assume responsibility for some of the teachers' Social Security payroll tax (formerly handled by the counties) and via revenue sharing from the new tax policies. But even with these measures the cost shift to counties is tremendous. Maryland is home to significant income inequality across and between counties and this cost shift will be especially burdensome on poor counties - counties where quality teachers are already hard enough to attract. Consider the stark contrast between Allegany County with a median household income of roughly $39,000 and Howard County where the median household income is $104,000. Yes, wealthier counties would now see an increased income tax burdone, but the increase would hardly offset the increased pension costs shouldered by poorer counties - instead, residents of poor counties will see increases in their local taxes.

Not in the budget, but expected to follow soon, is a proposal from O'Malley to increase the gas tax by $0.15 a gallon - bringing the state tax to nearly $0.40 per gallon. O'Malley argues this is a reasonable increase given the infrastructure needs of the state and the fact that the gas tax has not been increased in years. It's true the state is in need of infrastructure improvements - making one question the governor's decisions to repeatedly raid the transportation trust fund for other purposes in the past - but an increase in the gas tax during a weak economic recovery is just a bad idea. Adding that gas tax increase on top of recent and dramatic increases in Maryland tolls makes it an unforgivable idea.

Excise taxes (like those placed on fuel) and tolls are especially regressive as they consume far more of the income of lower income earners. O'Malley is essentially raising the cost of working for Maryland families. He is also raising the cost of providing for those families. The higher fuel and toll costs will deplete the disposable income of working families - that means less money to save for college, for retirement, and less money to spend on goods and services that help maintain economic growth. Higher fuel and toll costs will also increase the prices of goods and services meaning that Maryland's working families will have less to spend on more expensive goods and services - a double whammy that makes no sense in the midst of a weak economy.

As if the increased fuel and toll costs were not enough, the Governor would also double the current $30 flush tax on most families. O'Malley proposes that the flush tax now be based on water usage, rather than a flat tax - but this only works for folks with public water (like Howard County). For folks living in rural Maryland (like Allegany County) who draw water from a well the tax would simply be doubled. The net effect likely to be a disproportionate cost shift to lower income Marylanders. According to the Congressional Budget Office, the bottom 20% of wage earners pay three times more of their income on federal excise taxes on gasoline and motor fuel alone as compared to the top 20%. When all federal excise taxes are considered, the proportional burden placed on the bottom 20% rises to nearly six times that of the top 20%. Six times the burden for federal excise taxes alone - and O'Malley would add to the inequality through increases in state excise taxes. So much for progressive leadership.

In introducing the budget O'Malley declared "Job creation is our No. 1 priority..." Such a statement can hardly be reconciled with a budget that seeks balance by placing significant new costs on working class Marylanders by increasing the cost of driving to work, the costs of goods and services purchased, and even the cost of the water they drink.

In a state that tops the country in millionaires, O'Malley is relying on regressive taxation and a tremendous cost shift to counties to balance the budget. The approach is anything but balanced or fair and should be rejected by the General Assembly.

In Maryland, Budget Proposal Shows Why O'Malley Won Re-election

I openly admit that I was shocked by Maryland Governor Martin O'Malley's margin of victory in his re-election bid against former Governor Bob Ehrlich. I argued on this blog and in the pages of the Baltimore Sun and the Maryland Gazette that the race would be close. In the closing days of the campaign, the Washington Post and the Baltimore Sun released polls showing O'Malley ahead by 11 to 16 points - I dismissed both polls. I had no doubt that O'Malley was ahead, but double digits?  In one interview, in an unguarded moment, I pledged to eat my Blackberry if O'Malley won by 14 points... he won by 14.45 (at least I now have an excuse to get the new Verizon iPhone).

In the waning days of the race, as Ehrlich was losing momentum, I explained that Ehrlich had a very tough case to make. Martin O'Malley, a progressive Democrat by admission, had very much governed as a fiscal conservative. O'Malley's single flourish of progressive budgeting was evident in the 2007 special session of the Maryland General Assembly when taxes on businesses and individuals were raised resulting in $800 million in new revenue in FY 2009 - but even those tax increases were coupled with $500 million in spending reductions that same year - rather than a "tax and spend" liberal O'Malley was a "tax and cut spending" moderate.

Then came the Great Recession and a collapse in state revenue - since December of 2007 the state has realized $8 billion less in revenue than forecast. As revenue declined the state's budget deficits ballooned and O'Malley became a "cut spending" conservative. Since assuming office in 2007, O'Malley had presided over $5.6 billion in cuts to the state's General Fund budget - with the FY 2012 budget released today the record of spending cuts will jump to $6.6 billion. Those cuts, coupled with the 2007 tax increases, and roughly $1.3 billion in federal bailout dollars allowed the state to balance its budget every year (coupled with a multitude of additional cuts imposed by the Board of Public Works).

But current forecasts show Maryland $1.4 billion shy of a balanced budget in FY 2012, and with a newly elected Republican House of Representatives in Washington there will be no more federal bailout dollars. In the budget submitted today, Governor O'Malley doubles down on his record of spending cuts as he closes the deficit relying almost entirely on them. Fully $1 billion in savings comes from reduced spending, another $300 million comes from fund transfers, and only $150 million from projected increases in revenue. The budget also begins the process of dealing with the state's unfunded pension obligations and introduces a new, optional pension system for new employees.  It will now take longer for employees to be vested in the pension, early retirement age increased from 55 to 60, and benefit calculated on highest 5 years of salary rather than highest 3 years. Substantial savings will also be achieved by shift future retirees to the Medicare Prescription Drug Benefit - eventually I believe the state will have to abandon its defined benefit pension system, but O'Malley found a way to protect it at least for a few more years.

The 2010 midterm election was an election driven by concerns over the economy and concerns over seemingly irresponsible government spending. Martin O'Malley not only weathered the GOP tide that swept across statehouses in November, he generated a tide of his own. He was able to accomplish this not simply because Maryland is an overwhelmingly Democratic state, but because he has made some very difficult choices as governor. And, despite his progressive leanings, has presided over an era of very conservative budgeting.

With that record of fiscal management, what did Bob Ehrlich have to run against? What reason would Maryland voters have to defeat O'Malley? If you were a progressive voter seeking an expansion of government you may not have been happy with O'Malley - but Ehrlich was not an alternative. If you were a moderate seeking responsible budgeting, O'Malley was delivering. And if you were a conservative, you may have preferred even less spending and lower taxes - but here you would have been challenged by the fact that general fund spending increased dramatically under Ehrlich. Under O'Malley, the state has eliminated 4,200 positions and the ratio of state employees to state residents is at its lowest level in 40 years.

I will temper my praise for O'Malley's 2012 budget by making clear that I think more needs to be done to reform the state's pension system - namely it should be eliminated and replaced by a defined contribution system with no future state obligations. I also think that the Governor has already cut too much from Medicaid reimbursements and hospitals in the state - but on balance, I have a hard time imagining a more responsible and reasonable budget.

So yes, I was shocked that O'Malley won by 14 points... but on reflection, I shouldn't have been.

President Obama's Budget Would Provide Millions for Maryland

President Obama is receiving heated criticism over his proposed $3.83 trillion budget for fiscal year 2011. Critics have seized on the fact that the budget would add $5.08 trillion in deficits over the next five years an amount that is $1.32 trillion, or 35%, more than the White House predicted just 12 months ago. Lost in the discussion of the budget proposal, however, is the inclusion of some much needed relief for states and an especially important bit of help for Maryland. The President’s budget includes nearly $25 billion in supplemental Medicaid funding for states via a temporary boost to the share of program costs paid by the federal government. The so-called Federal Medical Assistance Percentages, or FMAPs, determine the share of Medicaid costs paid by Washington and all states receive at least a 50% match on dollars spent. Although Medicaid is jointly funded by states and the federal government it is an expensive program and in many states represents the largest slice of the budget pie – averaging about 22% of a typical state’s budget. Medicaid participation is very responsive to changes in the economy and the recent economic downturn has caused state Medicaid enrollment to swell. A study by the Kaiser Commission on Medicaid determined that each 1 percentage point increase in the national unemployment rate translates into one million additional Medicaid participants and state revenue declines of 3 to 4%. It was estimated that nearly 5 million Americans had enrolled in Medicaid since the start of the recession.

To help states defray the cost of this increased demand for Medicaid, Congress included a 6.2% increase in the FMAP as part of the American Recovery and Reinvestment Act past early last year. But that assistance expires on 12/31/2010. Few states expect to experience an economic recovery sufficient to offset the loss of those supplemental funds by then. The House of Representatives had included supplemental Medicaid funding in its version of health reform and more recently included the 6.2% increase in the FMAP in a jobs bill passed in December. The House version of health reform is considered to be dead in light of the special election in Massachusetts that ended the Democrat’s supermajority in the Senate, and the Senate is yet to move on the jobs bill. Many states, Maryland included, were already counting on the receipt of the additional Medicaid funds to avoid making painful cuts in their fiscal 2011 budgets. In an effort to close a nearky $2 billion hole, Maryland Governor Martin O’Malley assumed the receipt of nearly $400 million in supplemental Medicaid funds in the budget that he submitted to the General Assembly on January 20th. The Massachusetts election seemed to put those funds in doubt and state Republican leaders criticized the inclusion of the funds in the governor's budget. But the Presidents budget proposal appears to vindicate O’Malley’s choice to count on the funds. If approved, the 6.2% increase would mean several hundred million additional Medicaid dollars for Maryland in fiscal 2011.