Taming MD’s Structural Deficit

By Barry Rascovar

April 27, 2015 —  Can Republican Gov. Larry Hogan Jr. tame Maryland’s long-standing structural budget deficit? Judging from his first stab at it, he’s more than halfway there.

But high hurdles lie ahead if he is to reach the point where the state’s ongoing revenues far exceed annual spending.

Taming MD's Structural Deficit

Hogan may grumble to appease conservative groups about the remaining $206 million structural imbalance in the budget that’s been approved for the fiscal year starting July 1.

Yet that is a sharp reduction from the deficit anticipated back in November of a $525 million shortfall under Democratic Gov. Martin O’Malley.

Not Too Shabby

The General Assembly’s Department of Legislative Services (DLS) says Hogan is 68 percent of the way toward wiping out the structural imbalance — and if he continues to hold firm in denying state workers a 2 percent pay raise starting July 1, he will reach 82 percent of his goal.

Not too shabby for a Republican governor facing an overwhelmingly Democratic legislature.

Those deficit numbers will grow somewhat if Hogan decides to give Democratic lawmakers some of the $202 million they asked him to restore to various education, health and wage programs.

Still, Hogan begins preparation for his second budget in remarkably good shape.

It’s no secret that the Big Three growth items in Maryland’s budget are: 1) soaring debt service payments; 2) continually rising education aid, and 3) ever-rising health-care costs.

Too Many Bonds

Debt service alone will jump by $167 million next year. Payments on general-obligation bonds has tripled in the last three years. Hogan needs to take a hard look at ways to reduce or slow Maryland’s issuance of those bonds, including the always popular school construction allocations, which in July’s budget hits a record $380 million.

Complicating matters for the governor is Maryland’s too-slow economic recovery from the Great Recession. DLS estimates state revenues in fiscal year 2017 will grow a modest 4 percent. Yet it will take a 5.7 percent growth rate to balance spending with revenue.

More economic development is the key. That’s a long-term proposition, though.

Hogan’s aggressive “Maryland is open for business” theme won’t result in major tax gains for the state any time soon. So the governor will have to continue cutting back on state agency spending while finding areas where deeper cuts can be made without creating a harsh backlash in the legislature.

Ratcheting down the structural imbalance is Hogan’s best course. The problem is that he’s also determined to deliver on his main campaign promise — lower taxes.

Thus, balancing the state’s books isn’t enough. He’s got to go further so he can justify a tax cut that does not create a new structural deficit.

More Daunting Problems

That’s where Hogan’s problems multiply. Aid to local governments is a likely target, until you start to pull the plug on specific spending programs, like money for schools, police, fire-fighting, the poor, libraries and parks.

MD's Structural Deficit

Indeed, almost every area of state government spending affects huge numbers of Maryland citizens. Hogan must take care not to antagonize too many of them. If he does, it could jeopardize his re-election

Looking down the road, Hogan faces even more daunting budget difficulties, Indeed, DLS puts the state’s combined deficit for fiscal years 2019 and 2020 at $1.165 billion .

As bad as this sounds, it is a huge improvement over what O’Malley left behind: a combined estimated deficit for those two years of nearly $2 billion. Hogan reduced that future imbalance by 41 percent in his first budget.

Fundamental spending changes won’t be possible with Maryland’s Democratic legislature acting as a brake on Hogan’s budget-cutting tendencies. That’s why the slow-but-steady approach makes so much sense.

It won’t please Hogan’s absolutist supporters, but gradualism could prove the most practical and politically astute path to follow.

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Procurement Disgrace

By Barry Rascovar

March 20, 2015 — Maryland’s system of contracting for services through competitive bids is in shambles. It has been that way for years — and is getting worse.

It’s an embarrassment to taxpayers. Yet a long list of procurement debacles hasn’t been enough to spur sweeping reforms.

That seems likely to change, thanks in part to a royal screw-up on a food-service contract that all three members of the Board of Public Works strongly denounced last week.

Procurement Disgrace

Maryland Board of Public Works

Gov. Larry Hogan Jr. described the badly botched prison-food procurement as “one of the most disgraceful displays of mismanagement” he’s seen in his long business career.

Comptroller Peter Franchot, a persistent but lonely critic of these contracting disasters, called it “the most troubling procurement” in his eight years on the board.

Treasurer Nancy Kopp, ever the diplomat who chooses her words with care, said she was “sorely troubled.”

Nightmarish Tales

Nearly every month, the board hears nightmarish tales of state contracting efforts gone awry, of contractors who submit low-ball bids only to seek costly add-ons later, of inept procurement  officials who misapply contracting rules, tilt the playing field, make a mess of the bid-and-award process or fail to use common sense.

Hogan and Franchot earlier this year repeatedly skewered University System of Maryland officials for ineptly explaining cost overruns and excessive spending on university capital projects.

Now the prison-food contract horror story has led board members to the brink of action.

It’s a tale of stupidity by corrections officials under former Gov. Martin O’Malley.

It’s a tale of a contractor using the threat of cutting off food deliveries to Baltimore inmates to secure a whopping 54 percent boost in state payments.

It’s also a tale of misleading statements that are coming back to haunt the winning bidder.

Franchot called the misadventures of this contract award “highly irregular.” He urged the governor to ask Attorney General Brian Frosh to investigate and determine whether this was the result of “staggering incompetence — or something else.”

Franchot also should have asked the governor to appoint a blue-ribbon panel of outside experts to study recent procurement disasters and recommend ways to fix a dysfunctional system.

Meals Per Day

In short, here’s what happened on the prison-food contract.

State corrections officials made the inexcusable mistake of erring on how many meals are served to Baltimore prison inmates each day. This should have been basic math, backed up by recent meals-per-day figures.

Yet corrections officials requested contractors submit bids for serving 23,000 daily prison meals. The actual number should have been closer to 15,000.

That’s a huge difference because the contractor is paid on a price-per-meal basis.

The incumbent contractor, based on its seven years of experience at the Baltimore prisons, estimated it would cost $89 million over three years to fulfill the food contract. The other bidder came up with a stunningly low figure of $37 million.

That’s a whopping difference — a gap in bids so gigantic it should have set off alarm bells. Something was very wrong with the state’s request for proposals (RFP).

Board Approval

Instead of catching the mistake early, state prison officials went ahead and awarded the contract to the low bidder, which hadn’t even taken the basic step of inspecting the prison kitchen facilities before bidding.

Such naiveté never surfaced when the board, under O’Malley, approved this contract in early January. Instead, the company called itself award-winning and pledged to do a great job.

Almost immediately that promise collapsed.

The prison kitchen facilities needed hundreds of thousands of dollars in upgrades that the contractor hadn’t figured on. Health inspectors listed 11 pages of required remediation.

The vendor was serving nearly 8,000 fewer meals per day and losing $70,000 a week.

On Feb. 24, the company informed the state it would stop serving inmates on Feb. 28 — just four days later — unless its compensation was boosted immediately by 53 percent.

Faced with the prospect of inmates going without food, new corrections secretary Stephen Moyer had little choice but to give the vendor what it wanted — an emergency, six-month, $6.6 million contract that dramatically jacked up payments to the vendor.

Moyer wisely cancelled the original contract award, which is supposed to be re-bid in about six months. Good luck on that one — especially since the department that bungled the first RFP-and-award process is still running the show.

Franchot called the winning vendor’s explanations “deplorable.” “You essentially deceived us,” he told the company’s owners last week.

But whose fault was it? The state is so culpable that legal action against the winning bidder may not be possible.

Thorough Vetting

In reality, it is a systemic problem.

From top to bottom, Maryland’s procurement laws and procedures need a thorough vetting by experts. The process is too easily manipulated by contractors and by state officials.

Hogan has grown increasingly irritated by the flawed and costly contracting mistakes that have come before the Board of Public Works since he took office in late January,

Enough already.

Actions to revamp and improve the system will speak far louder than angry words of disgust.

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Minimalist Legislative Session

By Barry Rascovar

April 15, 2014 — Not much was expected from the 2015 Maryland General Assembly session — and we weren’t disappointed.

Minimalist Legislative Session

Think I’m kidding? Then try this one on for size:

(Fill in the Blank)

“The Maryland legislature’s greatest achievements this past session were _______________________,  ___________________________ and  ______________________________.

I couldn’t complete that sentence.

There was no big-league legislation to crow about when the final gavel sounded sine die Monday night.

If you, too, have trouble coming up with truly significant steps forward by the General Assembly this session, you’re not alone.

It got so bad that when the Baltimore Sun spent 24 column inches on legislative achievements, every section detailed the General Assembly’s failures — not successes — on education, transportation, environment, criminal justice and health. Few accomplishments were even mentioned.

Turnover Hurt

This shouldn’t come as a surprise.

High turnover after Assembly districts were re-drawn before last year’s elections meant a large number of freshmen lawmakers spent the 90-day State House gathering learning the ins and outs of lawmaking, how to file their expense accounts, where the bathrooms are located and what it takes in practical terms to get bills enacted.

No wonder this was a minimalist session.

New Gov. Larry Hogan Jr. didn’t help matters. The Republican came into office with zero experience as an elected official, just a handful of campaign promises and no legislative agenda.

The wish list he submitted proved thin and lacking in substance or realism. Few of his bills passed; those that did were given Democratic-friendly face-lifts.

Minimalist Legislative Session

Maryland Gov. Larry Hogan Jr.

Hogan failed to provide the Maryland legislature with strong guidance or leadership — other than his effort to chop  the size of the state budget. He was a no-show on legislative matters for much of the session.

Uber, Divorces & Midwives

When the most newsworthy votes deal with Uber’s taxi service, granting quicker divorces, allowing midwife home-births, higher speed limits and letting ex-felons vote, it signals that Maryland lawmakers knew they weren’t ready to tackle heavy-duty issues.

That’s not necessarily a bad thing.

Who says every General Assembly session must contain blockbuster legislation? Sometimes it’s nice to know state lawmakers are content to tinker around the edges of state law.

That means taking small steps to clarify existing statutes, modernizing antiquated sections of the Maryland code and giving interest groups incremental adjustments instead of sweeping change.

Who Sets the Agenda?

Legislatures are not designed to provide strong leadership on dominant social issues. Too many people are involved — 181 in Maryland’s case. It’s up to the governor to set the agenda each year. He’s the state’s top elected leader after all.

But Hogan wasn’t prepared to lead so soon after his surprising election last November. Next year, though, should be different.

His challenge will be to assess what practical moves can be made to help grow jobs in Maryland, improve education and transportation, protect the environment and public safety while helping the state’s large underclass.

Then he’s got to find ways to reach out to Democrats in the legislature for support.

Failure to do so could make next year’s session an even bigger disappointment.

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Hogan: Strike One

By Barry Rascovar

April 14, 2015 — In his stubbornly conservative and highly politicized approach to governing Annapolis over the past week, Republican Larry Hogan Jr. took a step that may seal his fate as a one-term governor.

Hogan: Strike One

Maryland Gov. Larry Hogan Jr.

Let’s see: In just a few days Hogan managed to alienate and infuriate state workers, public school teachers and education advocates, disability workers, supporters of medical assistance for poor pregnant women and doctors who treat Medicaid patients.

He also left a trail of non-accomplishments.

Hogan’s refusal to follow-through on a final budget accord and instead turn the issue into a political football left Democratic legislators resentful and itching to show they can play hardball, too.

For someone who entered the governor’s mansion as Mr. Nice Guy cooing bipartisanship, Hogan ended his inaugural legislative session as Mr. Tough Guy defiantly declaring great success for what was clearly a disappointing 90-day performance.

Seeds for a Pushback

His flimsy legislative agenda got shredded. He turned victory on the state budget into an easily avoidable defeat.

He sowed the seeds for a strong Democratic pushback that could make Hogan’s legislative life miserable over the next three years.

The Republican governor’s inexperience showed.

He let hard-line ideologues on his staff get their way. Democrats reacted by tying his hands in future years on making budget cuts to education. They blocked him at nearly every turn.

Teacher layoffs that are sure to follow from Hogan’s budget-cutting actions will haunt him. He has awakened a key element of the Democratic Party’s base. Teachers and public school parents in core Democratic jurisdictions will neither forgive nor forget.

Pay Cut Coming

He also made enemies of 80,000 state workers by cutting their paychecks 2 percent, starting in July.

He still has a chance to spend the money set aside by the legislature for those two groups but that would require political accommodations Hogan doesn’t seem willing to make.

The irony is that Hogan had a golden opportunity to negotiate a budget giving him much of what he wanted without enraging large voting groups.

Indeed, Democratic negotiators thought it was a done deal — until Hogan made intentionally unacceptable demands at the last moment.

The new governor showed his naiveté and lack of insight into Maryland’s complex legislative process. His hard-nosed, conservative roots were showing.

His biggest mistake: Failing to accept the divided nature of governance in Maryland. Election as governor does not entitle Republican Hogan to rule the land in an imperial, “I’m the boss” manner.

Democrats firmly control the General Assembly. They are co-rulers. They make the laws, set policy and sit in judgment on the governor’s budget.

Hogan can’t demand obeisance to his legislative wishes. He can’t insist Democrats support a decidedly Republican agenda. Yet that’s what he tried to do in the final week before Monday’s sine die adjournment.

Budget Progress

Picking up the pieces won’t be easy for the governor.

He did, though, take a major step toward truly balancing the state’s budget. Simply by trimming government spending in the next few years, identifying areas where money can be saved without significantly impacting services and keeping expenditures lower than Maryland’s growth rate, Hogan can tame the state’s structural deficit demon.

But don’t expect savings large enough to support major tax cuts. Even if that were to happen, Democrats in Annapolis would write laws that re-direct this surplus in ways more appealing to their constituents in Maryland’s big, Democratic subdivisions.

Hogan gets the next nine months to operate without legislative interference. He’ll have time to assess his next moves and prepare more carefully for the 2016 General Assembly session.

Will he seek to re-build bridges to Democratic lawmakers on issues of mutual concern?

Or will he continue to take the path of political opportunism that makes governing impossibly difficult in the Maryland State House?

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Hogan’s Choice

By Barry Rascovar

April 13, 2015 — Has Gov. Larry Hogan Jr. overplayed his hand? We’ll find out today as the Maryland General Assembly tries to wrap up its 2015 session.

Hogan's Choice on budget compromises

Gov. Larry Hogan Jr.

Hogan has two choices: Continue to play hardball with the Democratic legislature and risk losing all of his legislative priorities, or negotiate a settlement that gives everyone partial victory.

The first choice is really the nuclear option.

Hogan already has dug in his heels a couple of times in budget negotiations by demanding full passage of his partisan agenda that Democrats find unacceptable. Meanwhile, he says he won’t give Democrats what they want on education, Medicare and salary adjustments.

Another Ehrlich?

This “my way or the highway” approach is what punctured former Republican Gov. Bob Ehrlich’s balloon and led to four years of bitterness and open warfare between the political parties in Annapolis.

Does Republican Hogan, who was part of the Ehrlich administration, wish to go down that dead-end road again?

He shouldn’t misread the election results. This state remains heavily Democratic, as reflected by the make-up of the General Assembly. For a Republican governor, power-sharing is the only rational road to travel — if you want to make headway on your goals and win reelection.

Today, Hogan must decide if he wants to fight or smoke a peace pipe. It shouldn’t be a difficult call.

Shrinking Budgets

Even if he gives Democrats what they want in the budget, Hogan still has achieved his immediate objective — sharply lowering Maryland’s structural deficit and sending a clear signal that more slimmed-down budgets are coming.

Hogan is in control. But he could lose that advantage if he touches the third rail of Democratic politics in Maryland — aid to education.

A sharp cutback in state education funding for large Democratic subdivisions would be met by howls of protests by parents. It might well lead to teacher layoffs, larger class sizes and bitter anger in those subdivisions.

Why risk hostility that could sabotage cooperation with the Democratic legislature over the next three years and foreclose chances of Hogan gaining Assembly approval of his promised tax cuts?

Negotiating Tactics

So far, the governor has played the budget negotiating game well. He’s kept Democratic leaders off-balance. He’s already moved Democrats in his direction.

Indeed, he made them look foolish on their efforts to strip money from state worker and teacher pension accounts. He’s also won concessions on a handful of bills he wants passed.

If he cuts a deal at this stage and declares victory, Hogan will emerge from the session with incremental successes and few hard feelings on the Democratic side.

That’s not a bad outcome given the fact that most legislative triumphs take more than one session to achieve — and that legislative victories for a Republican governor in Maryland are always difficult.

Of course, compromise won’t please hard-edged  conservative Republicans who will accept nothing less than Democratic capitulation. Hogan would be wise to ignore them and focus on the bigger picture.

He’s got four years to construct a positive list of accomplishments. He’s made a sound start over the past 90 days. He’d be foolish to blow it at this late stage.

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Barry Rascovar’s blog is www.politicalmaryland.com. He can be reached at brascovar@hotmail.com.

Hogan Wins Round 1

By Barry Rascovar

April 6, 2015 — Even before the final votes are taken the verdict is in: The winner of Maryland’s 2015 budget fight, by a wide margin, is Republican Gov. Larry Hogan Jr.

Actually, Hogan was playing with a stacked-deck.

Maryland governors almost always win these budget fights because they’re the only ones who can add money to programs and priorities; the legislature has the power to subtract, period.

Gov. Larry Hogan Jr.

Gov. Larry Hogan Jr.

But remember where Hogan started: He was handed a wildly out of balance budget by outgoing Democratic Gov. Martin O’Malley, who had neglected to take strong steps to stem the growing deluge of red ink on the state’s books.

Even worse, projections called for far wider deficits in future years. O’Malley wasn’t up to the task of pulling back hard on the spending reins because he was preparing to leave office and run for president as a darling of the Democratic liberal left.

So O’Malley passed the baton and dropped the budget mess he had created in Republican Hogan’s lap.

Judicious Budget-Cutting

Thanks to the work of career budget analysts and former state Sen. Bobby Neall, Hogan whipped up a budget-balancing plan in about six weeks. It was a tough but judiciously pared-down financial blueprint that went nearly all the way toward eliminating Maryland’s chronic and widening structural gap between revenues and spending.

Hogan also called for long-term steps to ratchet down future spending growth in costly education and health programs.

Democratic legislators didn’t bite on that last Hogan proposal. Yet there is nothing they can do to stop the governor from shrinking budget increases for state and local aid programs in each year of his administration.

The result is a half-loaf victory for Hogan, which is impressive for a Republican in a heavily Democratic state. If he persists over the next three years, he’ll almost certainly pick up the other half of the loaf — and more.Government Spending

Hogan came into office promising to squeeze excesses from the state budget so he can lower taxes.

He’s started down the first path with considerable success. The tax-cut pledge will be infinitely harder to fulfill, as Democrats have shown in this legislative session.

In office, Hogan has proved to be a realist. He recognized that without a truly balanced budget that slowed spending, there is no hope of gaining meaningful tax reductions.

He’ll have to keep shaving Maryland’s expenditures — and especially the state’s overly ambitious and costly capital spending program. Ever-rising health and education costs remain enormous challenges, too.

Power-Sharing

Still, the direction of future Hogan budgets is now transparent to both conservative Republicans and liberal Democrats.

To the relief of Democratic legislators, the new governor isn’t a scorched-earth program cutter. He understands the importance of the social safety net, of education advancements and offering improved health care options.

He also understands the dynamics of Annapolis.

Hogan knows he must share power with the heavily Democratic legislature. He must find common ground and avoid the mistake of the last Republican governor, Bob Ehrlich, who proved too partisan and confrontational.

So far, Hogan is succeeding.

Fiscal Turnaround

He’s won this year’s budget battle, regardless of the final negotiations over legislative demands for restoration of funds for public schools and health care.

The new governor has turned around Maryland’s bleak fiscal forecasts in a matter of months, not years.

Once legislative adjournment comes on April 13, Hogan will have the rest of  the year to implement spending hold-down ideas, analyze where downsizing makes sense, educate lawmakers on sensible ways to shrink the cost of state government and start eliminating excessive and harmful business regulations.

Not bad for a guy given almost no chance of winning the governorship a year ago — or of working constructively and peacefully with legislative leaders of the opposite party.

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Madaleno Crosses the Line

By Barry Rascovar

April 2, 2015–If only it had been an April’s Fool joke — but it wasn’t. Instead, a highly regarded Maryland state senator, who happens to be gay, got carried away with his anger over a discriminatory Indiana law and dragged the governor’s wife unwillingly into the conversation.

Sen. Richard Madaleno went too far. He crossed the line. His letter to the governor was hurtful to an innocent bystander.

State Sen. Richard Madaleno

State Sen. Richard Madaleno

Madaleno lost his credibility, and his argument, as soon as he dragooned Gov. Larry Hogan’s wife, Yumi, into his pitch for the governor to ban travel by state officials to Indiana.

Yumi Hogan, Madaleno wrote, could be subjected in Indiana to “public humiliation” under the new law and refused service by a business because she is a divorcee.

Spouses as Fair Game

It’s ludicrous statement. Worse than that, it unfairly makes a spouse fair game in rough-and-tumble political controversies.

How would Madaleno like it if the governor made a disparaging remark about the senator’s gay partner during a heated political debate?

It is unacceptable. Period.

Senate President Mike Miller did the right thing by telling senators “we don’t mention other people’s spouses in any type of correspondence — their spouses or children.”

Senate President Mike Miller

Senate President Mike Miller

Madaleno knows better.

He harmed his cause and his effectiveness in the State House. While his intentions were pure, his recklessness proved counter-productive.

Hogan rejected the senator’s letter as a “stunt.” He didn’t even bother reading beyond the offensive statement about his wife, who was needlessly reminded of a painful chapter in her life.

Rich Madaleno is respected for his fiscal expertise. He plays a major role in the legislature’s all-important budget deliberations.

Hurting Constituents

Now, though, he’s persona non grata on the second floor of the State House. The governor isn’t going to accommodate his requests or give his statements much credence. He’s damaged his ability to help Montgomery County constituents.

The senator is right to protest loudly Indiana’s deeply disturbing and un-American law that sanctions discrimination (especially since more conservative states are following suit).

But in his haste and emotional distress, Madaleno made a mess of his message.

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