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The Nose

The Money Play

The Nose Rides the Revenue Rollercoaster in Annapolis Budget Briefing

Posted 11/29/2006

"Gang's all here, eh?" the Nose overheard a blue-blazered legislative staffer in Annapolis commenting to a colleague before a Nov. 15 briefing for lawmakers about the state of Maryland's budget. And indeed they were--Senate President Thomas "Mike" Miller, House Speaker Michael Busch, Senate Budget and Taxation Committee Chair Ulysses Currie, and Gov.-elect Martin O'Malley's top aides Michael Enright and Steve Kearney--all Democrats--among many others. "Here to see what the money play is," the staffer observed, with a knowing wink.

The occasion was the periodic "spending affordability briefing" by the non-partisan Maryland Department of Legislative Services--the first after the Nov. 7 elections--given with wry and dry wit by Warren Deschenaux, director of Legislative Services' Office of Policy Analysis. The gathering was all business, with zero time allotted for ego-flexing soliloquies by legislators. Deschenaux got right down to it, describing the "revenue roller coaster" that continues its unpredictable path through the years, and the "echo effect" of ups and downs it causes on the spending side.

Though revenue growth was on the upswing from 2002, when it shrank nearly 5 percent from the year before, to '05, when it grew nearly 12 percent, it has since been tailing off. Growth in spending, meanwhile, has continued unabated since 2004, when it was just over 2 percent compared to the year before, to '06, when it hit 8 percent for the first time since '01. Deschenaux and his staff calculate that spending growth will rise to 11 percent in 2007, while revenue growth will continue its slide, hitting 4 percent in '07.

As Deschenaux put it to the legislators, the situation in recent years "has been looking bleak or challenging on the revenue side, but the spending side is doing beautifully." This year's revenue collections, meanwhile, "had been going swimmingly" until recently, he said, when they turned "rather weak" and "are just treading water at the moment. The current collection pattern is worrisome."

The fiscal year 2008 figures--that is, the year covered by the budget to be hammered out in the coming legislative session, which begins in January--are discomfiting, to say the least. Ongoing spending growth amounts to a little more than $1.4 billion, which will have to be balanced with ongoing revenue growth, which adds up to a little less than $600 million. "This is a striking mismatch," Deschenaux observed of the coming year's budget, "with ongoing revenue covering only about three-quarters of the $800 million increase in education aid, let alone the requirements for the rest of the budget.

"These deficits will never happen," Deschenaux added, "because they can't. The only question is how they won't."

While outgoing Gov. Robert Ehrlich boasts of leaving a $2.1 billion surplus, he also leaves a budget system that, according to Department of Legislative Services forecasts that assume no reforms, will erode that surplus down to $1.6 billion next year, and down to $260 million the year after, nearly depleting the state's rainy-day fund. It turns out that four years of Republican governance has spurred a spending spree coupled with unpredictable revenues that can't pay for it over time.

Welcome to Annapolis, O'Malley, land of the structural deficit. The Nose will be interested to see if you can do any better.

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