What a difference a year makes.
Twelve months ago, the state government was so awash in money that Gov. Wes Moore and state lawmakers were able to sock away hundreds of millions of dollars in savings and for future education and transportation needs.
But what was once a surplus has turned into a deficit, forcing leaders in Annapolis to make difficult decisions about how to make the math work. Will they raise more money in the form of increased taxes and fees? Will they cut back on planned programs?
Those questions will be at the center of the annual Maryland General Assembly session, which opened last week and runs through April 8.
The only thing, legally, that lawmakers must do during their session is pass a balanced budget. The process officially begins on Wednesday when Moore unveils his proposed budget.
The latest projection is that the state will be $761 million short for expected expenses for the next budget year, which will begin on July 1. If left unaddressed, that gap theoretically would expand into the billions of dollars in future years.
The shifting financial picture is due to a combination of factors outside the state government’s control and choices that the legislature has made. The pandemic-era federal aid is drying up, inflation means projects cost more and the growth of the state’s economy has been slow overall. At the same time, lawmakers have chosen to invest in priorities, such as tax breaks for low-income workers and veterans, and an ambitious and expensive public school improvement program known as the Blueprint for Maryland’s Future.
Moore has offered few specifics in advance of his budget announcement. But in an interview with The Baltimore Banner, the Democratic governor suggested that his team is trying to re-think how the government uses its money.
“We have pots of money right now that, frankly, when you look at historic budgets, are underutilized, unfocused and don’t have accountability measures,” Moore said, though he did not offer specifics.
“Part of the process of modernizing government,” he added, “means actually creating a budget that is more dynamic and meets the needs for the people in a way that historically the budget process did not do.”
The governor also talks broadly about expanding the economy, boosting industries like technology and cybersecurity so that there are more jobs and more economic activity. He hopes to get more people to work and make housing and childcare more affordable.
Moore: ‘Very high bar’ for tax hikes
Democratic lawmakers and some Republicans have sounded similar themes. But growing the economy is a long-term goal, and the state is facing an immediate shortfall that needs to be solved.
The total state budget is more than $60 billion, and pays the salaries of thousands of workers with tasks ranging from sending out unemployment payments to inspecting elevators to monitoring the health of fish and crabs. The budget also sends money across the state for local governments to operate schools and police. The state runs courthouses and hospitals, parks and transportation systems.
Could increased taxes be in the offing to keep that work going?
“Any conversation around taxes is going to have a very high bar,” Moore said.
Asked if that meant “yes, no or maybe” for higher taxes, Moore responded: “It means that we have to focus on being fiscally disciplined and coming up with fiscally disciplined ways of making our economy grow. And there’s going to be a very high bar.”
He repeated the point to a larger group of reporters hours later: “I think that in any conversation around taxes, people need to understand that my bar for that is very, very high.”
Focus on high earners, corporations
There are options for raising money through taxes that don’t hit low-income or middle-income Marylanders that could be considered.
A group called the Maryland Fair Funding Coalition put out ads last month pushing the idea that corporations don’t pay their fair share in taxes.
“It’s rigged and it’s wrong,” one small business owner says in the ad.
The coalition’s proposals include increasing the personal income tax rate on earnings of more than $500,000, lowering the threshold for taxing estates from $5 million down to $1 million, adding a 1% tax on capital gains income from the stock market and corporate tax reforms aimed at making sure companies don’t avoid taxes by shifting their income on paper to other states or other entities.
Combined, the proposals would bring in an additional $1.7 billion per year, said Kali Schumitz, a vice president of the Maryland Center for Economic Policy, a member of the coalition.
Some of the proposals have been circulating around Annapolis in various forms for years, but haven’t gained momentum. Schumitz said she hopes they’ll get better consideration given the state’s financial picture.
“Legislators are increasingly concerned about the prospect of having to cut back on public services and things that are needed in their communities,” Schumitz said. “And without additional revenue, it’s difficult to address new needs.”
Asked about those proposals, Moore said that he will be “actively participating in that conversation.”
The leaders of the Democratic-majority legislature also haven’t signaled what their approach will be. Once Moore proposes his budget, it gets detailed scrutiny from lawmakers, who have a relatively new ability to make their own cuts and move money around. The Senate will revise the budget and vote on it first, followed by the House of Delegates.
“We have to prioritize what we’re spending on,” said Senate President Bill Ferguson, a Baltimore Democrat. “So as projected costs are greater than projected revenues, we have to take actions today, now, that will set us up to be more aligned and in balance in the future.”
Asked if tax increases would be under consideration this year, Ferguson said, “I don’t think in major ways.”
“I think this is a year about prioritizing the resources that we have,” he said.
House of Delegates Speaker Adrienne A. Jones, a Baltimore County Democrat, noted that lawmakers have their work cut out for them to address the “tough fiscal realities.”
“We’re ready to work with the Senate and the administration to make tough decisions to pass the balanced budget, as we are required to do,” she said.
Republican favor cuts over taxes
Republicans, for their part, plan to fight against any notion of increasing taxes. They’re significantly outnumbered in Annapolis, but they believe that the majority of Marylanders are aligned with them in opposing tax hikes or new taxes and fees.
“If you want to pay for all the promises you made, you have to raise taxes significantly. That is not something that Marylanders want. Polling shows that,” said Del. Jason Buckel, an Alleghany County Republican who is that party’s leader in the House.
Marylanders, he said, are taxed enough already and also face a high cost of living in the state. A better solution, he said, is for the government to cut back on some of its programs and promises.
When economic times were good, the Democratic majority approved expensive programs, such as the Blueprint for Maryland’s Future, a multi-year plan to improve the state’s public schools. The Blueprint requires both the state government and local governments to pour significant amounts of money into public schools.
When the Blueprint programs are fully in place, each year Maryland will be spending $3 billion more on public schools than before the plan was approved in 2020. Democrats who pushed for the plan said the state couldn’t afford not to invest in students and teachers, and that the spending will result in students graduating with the skills to succeed in college or the workforce, as well as high-ranking schools that will draw residents and businesses to locate here.
Republicans were less keen on the investment of money.
“We pretended money wasn’t real any more,” Buckel said.
Sen. Stephen Hershey, an Eastern Shore Republican who is that party’s leader in the Senate, said years of poor decisions have led to this point.
“The General Assembly has been passing policies that have cost Maryland taxpayers more money, and they haven’t had a way to pay for it,” Hershey said.
Republicans, generally, favor trimming government spending rather than increasing taxes.
As members of the House Appropriations Committee gathered for their first meeting, one of their top nonpartisan analysts said he’d be offering more suggestions for possible cuts than perhaps lawmakers are used to.
“The last few years have been good fiscal years. The state has had a lot of money, a lot of federal money has flowed,” David Romans, coordinator of fiscal and policy analysis, told lawmakers.
That meant in past years, analysts only suggested possible cuts that were “easy” or to correct errors.
“Given the much more difficult financial circumstances the state finds itself in for this year and for the foreseeable future, I think you’ll see a much more aggressive approach, in terms of putting a lot of options on the table for you to consider.”
Maryland not alone
Maryland is not alone in its budget predicament. About half of all Americans live in states that have short-term deficits, long-term projected deficits, or both, according to an analysis from the Pew Charitable Trusts.
Some states actually are suffering from “chronic budget programs” that were “temporarily masked” by an influx of federal aid related to the coronavirus pandemic, according to Pew. Now that the pandemic aid is drying up, the problems are plain to see.
That’s also the conclusion of a new “State of the Economy” report from state Comptroller Brooke Lierman.
Though Maryland has low unemployment, high median income and high levels of education, there are other negative economic indicators, the report found: Labor participation has not recovered to pre-pandemic levels, private-sector job growth has been stagnant and the high cost of living is driving some people to move.
Lierman wrote in the report that those metrics should “serve as flashing yellow lights for the state’s fiscal health.”