Federal Policy Threatens to Undermine State Investments, Deepen our Unmet Needs

December 27, 2017 by Christopher Meyer in Blog, Budget and Tax

The General Assembly committee that makes annual recommendations about the state’s budget made two things clear at its final meeting of the year last Tuesday: The state currently underinvests in the services Marylanders rely on, and the federal government’s budget and tax priorities will make it even harder to make those investments in the future. The committee’s recommendation to take a cautious approach to the state budget for the fiscal year that will begin in July was the right one, for now. Ultimately, if we follow the federal government’s lead and continue to underinvest in Maryland communities, it will do lasting damage to families and our economy.

The Spending Affordability Committee meets each fall to assess the state of Maryland’s economy and make recommendations for the budget that must pass during the next legislative session. While these recommendations are not binding, the governor and legislature have almost always followed them. Here are the committee’s key recommendations for the coming budget debate:

  • Eliminate the state’s structural deficit and leave $100 million in the general fund by June 2019. The structural deficit refers to the state’s budget shortfall, excluding one-time costs and revenues. Eliminating this gap will require $298 million in new revenues or spending cuts.
  • Pay close attention to the effects of federal tax and spending changes—both on the state’s finances and on lower- and middle-income Marylanders.
  • Increase the state’s borrowing authority by 1 percent next year rather than keeping funding flat, as the Hogan administration recommends. Because construction costs go up every year, flat funding reduces our ability to invest in modern school facilities, roads, and transit.
  • Begin to close the state’s 2,500-employee staffing gap, which makes it harder for the state to provide essential services and increases overtime costs.

Decisions made by Congress and the Trump administration are among the biggest threats to the state’s fiscal health. The tax bill Congress passed last week threatens health insurance coverage for 226,000 Marylanders and reduces the amount of state and local taxes that can be deducted at the federal level—while delivering a windfall for multinational corporations and wealthy individuals. Making matters worse, Republicans are now planning to use the deficits they just created to justify slashing investments in families like Medicaid and food assistance. Taken together, these policy changes will both increase the need for state services and shift the cost of federal programs onto Marylanders.

In light of these threats, the Spending Affordability Committee’s cautious recommendations are reasonable. The coming cuts to federal programs will likely add costs to the state budget, and the governor is already calling for counterproductive state tax cuts on top of the federal ones. In this environment, it is prudent to maintain enough reserves to respond to unexpected costs.

At the same time, there is lots of evidence that the state will need to make greater investments to meet Marylanders’ needs in the future. As the Spending Affordability Committee recognized, state analysts have found that state agencies do not have the workers they need to provide services effectively. Independent analysts have found that we currently underinvest in public schools by $2 billion per year. An unbalanced approach based on deep budget cuts will make these problems worse. The state will need more revenue going forward to continue to support a strong economy. We can start by closing corporate tax loopholes and asking the wealthiest among us to pay their fair share.