Maryland's Fiscal Slide

Fiscal Year 2011 marks Maryland's third year of recession and fifth year of structural deficits. This article highlights how Maryland started on this path of fiscal instability and what the future holds if this trajectory continues.

This article is published in the 2011 volume of The Maryland Journal.

These tactics are not part of a one-time strategy prompted by the recession. Maryland has struggled to balance its budget for much of the last decade. The state’s structural deficit has continued to deepen since 2007, leading to the legalization of video lottery gaming to increase revenues. To date, these revenues have been insufficient to meet the gap. Budgetary balance has been achieved through fiscal maneuvers including fund sweeps, debt finance, federal aid, and the state’s Rainy Day Fund. In spite of these maneuvers, by 2015 the structural deficit is projected to grow to $1.65 billion.

Maryland’s deepening fiscal problems suggest a paradox. In 1982, the state instituted a commission to limit spending growth. Maryland’s constitutionally defined balanced budget rule requires the Governor to present and the legislature to pass a balanced budget. On the surface these rules imply Maryland’s budget is guided by principles of fiscal discipline.

Since the end of the recession of 1991–1992, Maryland’s budget has grown an average of 5 percent a year in real terms. Spending has doubled in real terms from $15.2 billion to $32 billion since 1998. The only year the budget decreased in real terms occurred in 2008. With federal stimulus funds, by 2009, spending was 11 percent higher than in 2006.

Maryland’s budget rules were designed with the intent of restraining spending growth. They have instead produced sustained and growing deficits. The rapid growth in Maryland’s budget, as well as the increase in mandated spending are products of the state’s fiscal institutions—the legislative and constitutional rules under which the state budgets. These include the Executive Budget process, the Spending Affordability Commission, and the Debt Affordability Commission.

The evolution and interaction of these rules forms the state’s political-fiscal environment. This environment also includes the state’s fiscal relationship to the federal government. The effect of this relationship is seen clearly with the American Recovery and Reinvestment Act of 2009, the intent of which is to stabilize state budgets with bailout funds and stimulate economic growth through infrastructure spending.

The combined effect of these has been the subsidization of spending path that cannot be sustained absent significant increases in state taxation, or spending reduction and reform. This paper examines each of these institutions and their role in creating the present fiscal crisis.

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