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BY COLUMNISTS

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DOCUMENTS


The Tentacle


December 12, 2005

Let the Good Times Roll

Richard B. Weldon Jr.

The Spending Affordability Committee met in Annapolis last Wednesday to discuss state spending levels for FY 2007, which begins July 1.

How appropriate! This collection of the legislative leadership, dominated by the Democratic Party, gathered on the anniversary of the Imperial Japanese attack on Pearl Harbor to discuss the fiscal condition of the State of Maryland.

You see, even when things are going really well financially, the legislature just can't seem to control the urge to spend more of our money. The fact that this year's General Assembly will meet during an election year doesn't help either.

Last year, Gov. Robert L. Ehrlich advocated a relatively small reduction in the property tax rate to the Board of Public Works. Neither Comptroller William Donald Schaffer nor Treasurer Nancy Kopp would agree to the governor's idea. Both cited the tenuous nature of the state budget, fearing that mandated spending increases in both public education and Medicare would drive future deficits.

While I don't fault their logic, and their fears were probably well-founded, the fiscal condition of the state suggests that now is the time to consider giving hard-earned treasure back to Maryland taxpayers. The national economic outlook appears to once again confirm President John F. Kennedy's belief that reductions in taxes spark the economy. Tax cuts approved by Congress several years ago are the most oft-cited cause of our strong economic outlook.

So Governor Ehrlich believes that a $1.5 to $2 billion surplus indicates that the state is taking more money from Maryland residents than it realistically needs to fund the operation of state government.

The Spending Affordability Committee offers a non-binding opinion to the governor and his budget staff about how much spending can be reflected in the upcoming budget without negatively impacting the all-important AAA bond rating.

With the revised surplus estimate now hovering above $1.5 billion, the Spending Affordability Committee has authorized the governor to spend well above the amount authorized in previous years.

The wish list is long and represents all of the special interests that dominate Annapolis' winter landscape. Teachers want a better pension benefit; state employees unions want pay raises; environmental groups want considerably more spent on cleaning up the Chesapeake Bay; parents of school kids in high-growth counties want to see the amount spent on school construction doubled over last year's amount; and public health advocates want more health care spending, especially on access for the poor.

All of these needs have merit, of varying degree and legitimacy. In an election year, these issues draw supportive legislators like a porch light draws bugs on a hot summer night. Add a significant surplus to the mix, and the rush to spend the surplus looks like the Christmas sales rush at that Detroit Wal Mart a few weeks back.

The special interests mentioned above will have some success at grabbing a significant share of the surplus bounty. The fear is that the rush to satisfy these interests will doom future budgets to huge deficits. Looming over every single fiscal discussion is the ruling from the Governmental Accounting Standards Board (GASB) to require that state and local governments account for their pension and retiree health benefit costs on the balance sheet beginning in 2008.

This sounds like some "inside baseball" type accounting jargon, important to those green eyeshade types but meaningless to the rest of us; if only that were true.

This decision, forcing government to account for retiree benefit costs using the same methodology that business has had to use, will have serious impacts on future state budgets. You see, we've been able to bury that long term liability in the financial statements without having the huge cost of these benefits affecting our annual budget balance.

A significant percentage of the surplus could be set aside to offset that long term liability, allowing future budgets to reflect the conservative fiscal stewardship so valued by the Wall Street bond rating agencies like Moody's, Fitch, and Standard & Poor's. Given that this requirement could affect the interest rate the state gets when borrowing money, and we pay for so many things with borrowed money, we should make solving this problem a priority over just about everything else.

Unmentioned so far is the potential for several hundred million in revenue from slot machine gambling. The slots debate has become so tiresome to so many legislators that we have given up and simply accept the fact that Delaware, New Jersey, and West Virginia will be the beneficiary of those Maryland dollars.

That will be Speaker Michael Busch's legacy; voters who agree with him consider him a hero; everyone else thinks he's a shortsighted political hack determined to deny Governor Ehrlich any sort of a legislative victory. Count me among the latter!

The order of priority for dealing with this surplus should be:

  1. Address the GASB retiree pension and health liability issue;
  2. Return to the taxpayers that which is rightfully theirs, a large percentage of the surplus;
  3. Bring the teacher pension benefit up by adding state money and increasing the mandatory contribution;
  4. Fill in more of the "donut hole in the Medicare Prescription drug program;
  5. Add $100 million to the school capital construction budget while restricting legislators from "earmarking" specific projects; and finally,
  6. Give state workers a modest pay increase.

If we fail to act now, like the ill-fated Coyote from the Roadrunner cartoons, we'll eventually be flattened as the good times roll right over us.



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