O’Malley’s Final Budget Choices

By Barry Rascovar

January 6, 2014 — THE NEW YEAR began on a positive note for Gov. Martin O’Malley. After years of depressing budget shortfalls and an achingly slow economic recovery, the governor received good news from the Board of Revenue Estimates and the state’s Spending Affordability Committee.

The bottom line: Maryland’s budget picture is brightening just as O’Malley prepares in another week to unveil his final spending plan as governor.

But there are cautionary notes attached to those reports warning of risks ahead, especially the unpredictable gridlock in Congress that could lead to a massive financial crisis over raising the nation’s debt ceiling.

Still, the BRE reported “a rising possibility of stronger, more sustainable growth in 2014 and beyond.”

Projections for 2014

The state’s unemployment rate has dropped to 6.4 percent and is expected to continue inching downward. Housing starts are projected to rise 14 percent this year and 26 percent in 2015. Casino revenues should grow 28 percent to over $1 billion, thanks to the fall opening of the Horseshoe Casino Baltimore.

All this led the revenue board to predict a 4.6 percent increase in state receipts. This, in turn, prompted the spending commission to recommend 4 percent growth in Maryland’s general fund budget.

But will O’Malley use this good news to launch a massive spending spree that cements his liberal legacy — and helps his national ambitions?

O'Malley Budget Briefing

O’Malley’s Budget Briefing

Or will he heed the warning signs and plot an incremental course that doesn’t handicap the next governor?

How Other Governors Acted

There are precedents for O’Malley to study.

Gov. Parris Glendening ignored urgent appeals in 2002 from Lt. Gov. Kathleen Kennedy Townsend to curb spending in his final budget and start closing a projected $1.8 billion deficit.

“Leaving the deficit unsolved further complicated the charge that this government was fiscally irresponsible,” noted Del. Pete Rawlings, the late House Appropriations Committee chairman. It was a major factor in Townsend’s electoral defeat that fall.

On the other hand, Republican Gov. Bob Ehrlich accumulated a $2 billion surplus in the last budget of his term, hoping to use this as a cushion against the looming Great Recession in his second term.

Of course Ehrlich ended up losing to O’Malley in 2006, giving the new Democratic governor a windfall he used for a major spending blitz.

Years later, it is clear that it would have been better to conserve that money for later use as state revenues plunged off the fiscal cliff.

Reasons for Caution

Here’s why O’Malley and legislators would be wise to take a “go slow” approach in the next budget.

Even with all the good news, state analysts are predicting a $188 million deficit by this July and a nearly $400 million deficit the following fiscal year.

Most troubling: ballooning, unbudgeted Medicaid costs ($200 million) could grow further due to unexpected fallout from the disastrous start of Obamacare in Maryland.

MD Healthcare Connection

MD Healthcare Connection

The state also must contend with soaring debt costs ($150 million) as the governor pushes for a higher borrowing capacity and delayed salary increases ($190 million).

O’Malley also should recognize that his chosen successor, Lt. Gov. Anthony Brown has made a string of costly campaign promises that cannot be met if the state budget spins out of control by next January.

Will he follow Glendening’s example and choose reputation-building over responsible budgeting?

Or will O’Malley look to Ehrlich’s example and moderate his spending plans so as to leave a manageable budget situation for the next governor?

The governor’s fiscal decisions will tell us a lot about O’Malley’s leadership qualities as he concludes his term and prepares to enter the national political campaign scene.

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