Friday, January 23, 2015

Governor Hogan's New Budget - No Tax Cuts, Flatlined Budget

Governor Hogan announced his first budget yesterday, January 22nd, announcing a two-percent reduction in state agency spending. (I can't tell if the cut is an actual cut in the base budgets or just the rate of increase. If someone knows for sure, tell me.) Reuters reports that this cut was actually instituted by former Governor O'Malley in his final budget.

Governor Hogan swore off tax cuts this year, and made no mention of the tax and fee increases of the last eight years. He focused instead on balancing and stabilizing the budget this year. In addition to the two-percent agency budget cut, the Governor also reduced by $160 million the Medicaid provider payment increase. He also halved the education subsidy used to compensate for areas with outsized education costs, and saved $156 million by eliminating projected cost-of-living increases for state workers.

Additionally, the Governor cut state aid to counties by fifteen million dollars and "borrowed" one-hundred million dollars from local income taxes. (The second tax authorized by the state and collected by the counties for their own coffers, if I understand correctly. Not the "official" county income tax) This burden-shifting in a major pillar of the savings scheme.

Governor Hogan increased total spending by one-half of one percent. The Governor bragged about the increased spending for education at all levels. Maryland already spends more than on education per student than four-fifths of the rest of the country. (See Chart H-11, Number 10 at $15,229 per student per year for 2012-2013) The Red and Purple lines, mass transit for Baltimore and Montgomery Counties currently remain on the budget, though their status is still under review. The total increase of one-half percent is roughly one-sixth of the average increase from 2009-2012, about three percent.

Overall, Governor Hogan saved money by denying state-government COLA increases, halving the Medicaid provider increase, the headlined agency budget cut and . He than spent all of that on, at least partly, education. (No other spending increases were mentioned to my knowledge.)

The spending shift is highly disappointing. The Governor ran on a platform of cutting taxes and spending, and shifting all of the savings and more into education instead of paying down debt or cutting taxes is not a good sign. Maryland is already in the top-ten in per-capita education spending. Perhaps that money needs to be spent better, but more does not need to be spent. Why did the Governor feel the spending was necessary?

He deserves credit for holding the line on the state budget. My friend Larry Smith points out that a one-half percent increase will be overtaken by inflation in the same year. In effect, the nominal increase in spending will be a decrease in real value, as inflation is a constant, ongoing effect and this budget will not be even passed, let alone spent, in the next few months. So, depending on the rate of inflation, the budget will either represent a flatline or a reduction in real value.

So a qualified success on eliminating budget growth in his budget. Hopefully we will see real (non-inflation related) budget reduction next year. Obviously a failure on tax reductions, though some temporary "relief" is still on the table. So on that we'll see. If the Governor makes the wise choice and cuts the Red and Purple lines, that would be another gain, depending on the total "savings" (money currently allocated for this purpose and then freed from it's cancellation.)

So, bottom line, a good start on the budget. Here's hoping it holds up.

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