As Maryland Gov. Larry Hogan takes a victory lap in the waning days of his second term in office, he cautioned the next governor on Thursday not to overspend in the state budget.
“We are not just leaving the state’s finances in better shape than we found them, but leaving it in the best fiscal position that the state has ever been in,” the Republican governor told reporters at the State House on Thursday.
Hogan unveiled a laundry list of recommendations for Gov.-elect Wes Moore, a Democrat whose team has had ongoing meetings with the current governor’s budget team.
Hogan’s budget office has spent the last several months shaping a preliminary budget for the 12-month period that starts next July 1. But it will be Moore who puts his name on the proposal and sends it to state lawmakers for approval. Moore can submit the budget as-is, or he can make changes.
State economists are expecting revenues to grow by 5.7% over the current budget year.
Moore’s team did not address the specifics of Hogan’s recommendations, but spokesman Brian Jones said in a statement that the current economic picture will require the new administration to be “strategic, intentional and responsible.”
Jones said Moore is looking forward to sharing his budget plan, “which will reflect Gov.-elect Moore’s vision and priorities to move Maryland forward with bold and disciplined investments in transportation, strengthening our competitiveness and providing Marylanders with a world-class education.”
Hogan recommends that Moore maintain the state’s savings accounts, which have been built up to healthy balances in recent years, as the economy has improved and money from the federal government came flowing in during the coronavirus pandemic.
At the end of the current budget year on June 30, the state is projected to have $3 billion in its Rainy Day Fund and another $2.5 billion in surplus money.
The Rainy Day Fund should be used only as a “shock absorber” during difficult financial times, David Brinkley, the state budget secretary, cautioned during a separate meeting on the state’s finances Thursday.
During the first waves of the coronavirus pandemic, for example, the Hogan administration pulled money from the Rainy Day Fund to help families, businesses and hospitals with aid programs. Much of the hole created in the Rainy Day Fund ended up being backfilled by federal money.
After Moore proposes his budget, lawmakers in the Maryland General Assembly will be able to make cuts and, for the first time, will have the authority to move money around within the budget. Hogan cautioned lawmakers to act carefully with their new budget power.
“It would be a mistake for the legislature to use its newly expanded budgetary power to return to the old habits of raiding the Rainy Day Fund or recklessly spending down the surplus,” Hogan said. “We’ve worked too hard and made too much progress to turn back the clock.”
When Hogan took office eight years ago, the state was still recovering from the Great Recession, when Democratic Gov. Martin O’Malley was forced to make tough decisions to keep the government’s finances intact. At the time, Hogan said, the state’s Rainy Day Fund was just $600 million.
There was “red ink as far as the eye could see,” Hogan said. He said the state’s economic turnaround is a signature accomplishment.
“I believe that this is a shining example that we truly have changed Maryland for the better,” Hogan said, echoing has campaign slogan.
Hogan worked up a long list of items that he hopes Moore will keep in the budget, among them: $10 million for a program called BOOST that funds private school scholarships for low-income children; $30 million to provide services for crime victims; $100 million for the projects in the Sheppard Pratt nonprofit mental health system, including a children’s hospital in Towson; $100 million toward a new University of Maryland Medical System hospital in Easton; $25 million for Project CORE, which demolishes vacant homes in Baltimore; and $102 million to replenish Program Open Space, which pays for land conservation and park projects.
One item not on Hogan’s budgetary wish list is tax cuts. Over his eight years, Hogan routinely pushed for tax cuts and succeeded in getting a few cuts through the legislature, including one last year that will help some retirees.
Asked about the absence of tax cuts, Hogan indicated he didn’t think that Moore would be as interested.
“Obviously, we could recommend that they continue that trend,” Hogan said. “But I’m not sure that they have the same philosophy as us.”
Financial experts are recommending that state take a prudent approach to the state’s budget, given an unclear national financial picture and a chance of a looming recession.
“We are cautious on the economic outlook,” said Robert Rehrmann, the state’s chief revenue official, during a meeting of a panel known as the Board of Revenue Estimates Thursday afternoon. Comprised of the budget secretary, state treasurer and state comptroller, the board sets the official estimates for how much money is coming into state coffers.
Board members agreed that if there is a recession, it might have modest impacts in Maryland. Comptroller Peter Franchot, a Democrat, said that’s because the state has “good economic bones.”
Treasurer Dereck Davis, also a Democrat, said it’s important to be prudent in spending “every dime” in a way that helps Marylanders.
“We are headed for tough days and we do have to tighten our belts,” he said.
With the possibility of the economic “pendulum” starting to swing in the wrong direction, Brinkley said, “It’s not necessarily a time for a spending free-for-all.”
Democrat Brooke Lierman, who will be sworn in as the next state comptroller in January, attended the revenue meeting and agreed with the cautious approach.
“There’s just so much uncertainty about the economy,” she said.
Lierman added: “We are aiming for a true Goldilocks moment where we don’t slow the economy too much so that we move into a recession, but we slow it down enough so that inflation decreases and makes wage growth that we’ve seen actually more valuable.”
Concluding a day of fiscal announcements from Annapolis, Senate and House members of the Spending Affordability Committee submitted their budget recommendations ahead of the 2023 legislative session, eyeing the economic and budget forecast made by the Board of Revenue Estimates.
Democratic Senate President Bill Ferguson affirmed the committee’s direction.
”In 2023, the Senate’s priority is to build on the momentum of the last term as we continue to move the State forward in a fiscally responsible way,” Ferguson said in a statement.