Category Archives: Maryland Budget

Hogan’s Holiday Hoax

By Barry Rascovar

Dec. 19, 2016 – You’ve got to hand it to Gov. Larry Hogan, Jr. What a prankster he is!

He’s pulled off one of the great holiday hoaxes of recent times in Maryland.

He’s got everyone convinced he is willing to kill 66 major highway projects in Maryland in order to get the legislature to repeal a law requiring a transparent advisory evaluation and ranking of big road, bridge and transit proposals.

Hogan's Holiday Hoax

Maryland Gov. Larry Hogan, Jr.

He’s worked himself into a lather about what, for political purposes, he niftily calls “the road kill bill” saying it will “wreak havoc on our entire transportation system.”

Anyone who disagrees with Hogan’s the-world-is-ending interpretation “is ignorant of the facts.”

This repeal-law effort, he says with a straight face, is his No. 1 priority in the coming General Assembly session.

That’s pretty strong stuff.

It’s got to be a holiday hoax. After all, virtually nothing Hogan is saying is based on a truthful, fact-based assessment of the situation.

He’s made the whole thing up – hopefully to give us a good laugh this joyful season (ho, ho ho!).

Darth Vader in Annapolis

Under Hogan’s alternative-universe scenario, the law passed by Democrats in the legislature ties his hands and requires him to kill road projects in all but a handful of urban jurisdictions – even though that’s not even close to what the statute says.

The state’s highest-ranking legal officer, the attorney general, says Hogan’s “Rogue One” interpretation of the law is pure science fiction. But for some reason Hogan wants to play Darth Vader in this reality show.

If you read the law, HB 1013, you’ll conclude it’s pretty meek: A toothless attempt to force more transparency in the state’s transportation funding process.

The law has no enforcement provision.

There is no penalty if Hogan ignores the statute.

It merely calls for a quality analysis, and ranking, of proposed transportation projects. After that list is compiled, Hogan & Co. are free to disregard the results – without any negative consequences.

Free Rein for Hogan

To drive home the point that the new law gives Hogan carte blanche to do as he pleases, lawmakers added this concluding sentence: “[N]othing in this Act may be constructed to prohibit or prevent the funding of the capital transportation priorities in each jurisdiction.”

In other words, Hogan can fund whichever road, bridge and transit projects he wants regardless of the score it receives.

All he’s gotta do is give “a rational basis for the decision. . . in writing.”

Like, “it will make the road safer.” Or “it will reduce traffic congestion.” Or “it will help economic development.”

Sounds easy for Hogan to abide by this law while he continues to dole out transportation dollars any way he wants.

Not according to the governor and his transportation boss, Pete Rahn. Indeed, Rahn has put forth four pages of regulations that ensure a fiery head-on collision in which dozens of road projects will be denied state funds.

As one witness put it at a Nov. 18 hearing on Rahn’s convoluted regulations, Hogan & Co. “are determined to not make this work.”

Transportation Funding Shortfall

Why would they do that?

One reason could be Hogan doesn’t have the funds to pay for all the road projects he’s promised the counties, according to the Department of Legislative Services.

DLS calculates Hogan will have to cut $315 million next year from his previous transportation proposals (and $1.6 billion over six years) to stay within the department’s debt ratio.

It seems that the six-year forecast for gas-tax receipts is falling far short of Hogan’s estimates and that the governor is overspending on transportation operations.

Something’s got to give. So naturally the politician in Hogan wants to shift blame to those evil Democrats in the legislature.

Suddenly a law that is unenforceable and totally advisory gets transformed by Hogan into Maryland’s “Nightmare on Elm Street.”

Political Posture

Hogan is likely to continue beating this bogus “road kill” issue to death as the 2018 election approaches.

He won’t get much help, though, from Democrats in the legislature.

It was clear at the Nov. 18 hearing that lawmakers want to work out a compromise in which the law is tweaked in ways that make it even more explicit Hogan remains fully in charge of deciding which transportation projects get funded and which do not.

Democrats aren’t going to cave in to Hogan’s illogical repeal demand. That is rightly seen as a politically inspired subterfuge.

Indeed, Hogan’s holiday hoax could backfire.

If, as expected, lawmakers amend the law so most everyone – except the governor – is happy with the outcome, Hogan no longer will be able to blame Democrats for killing road projects.

The governor remains the only person who can put forth funds for state transportation projects.

If he fails to deliver on his earlier road-improvement promises, he’ll have to man up to the fact that it was his decision.

That’s not the posture he wants as his reelection campaign draws near, which seems to be the most likely explanation for the governor’s bizarre “road kill” holiday hoax.

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Trump & Hogan Agree: Corporate Welfare Works

By Barry Rascovar

Dec. 5, 2016 – Maryland Gov. Larry Hogan, Jr. may not have supported or voted for President-elect Donald Trump but they agree on one thing: Corporate welfare works.

Throwing money and tax breaks at Northrop Grumman, Marriott International and United Technologies did the trick this past week – along with a good deal of loud, Trumpian threats in the case of UT’s subsidiary, Carrier Corp., in Indiana.

Trump, Hogan Agree

President-elect Trump celebrating deal to keep Carrier manufacturing plant open in Indiana.

To prevent Carrier from moving 1,400 jobs to Mexico, Trump used heavy-handed insinuation of future punishment to deliver a largely symbolic message that he’ll stop at nothing to save American manufacturing jobs.

Hogan’s task was somewhat different and involved persuasion rather than threats – backed by wads of cash.

A $57.5 million five-year package of “loans” and tax credits eventually persuaded Northrop Grumman to keep its 10,280 employees in Maryland – including the 6,800 who work at the massive former Westinghouse electronics complex near BWI Airport in Linthicum.

Meanwhile, a state-county incentive package of some $60 million was needed to keep Marriott’s headquarters in Montgomery County instead of shifting to Northern Virginia.

The bonus here is that Marriott intends to erect a $600 million complex in downtown Bethesda for its 3,500 HQ employees. That number should expand due to Marriott’s recent $13 billion acquisition of Starwood International.

Democratic Roadblock

The two Maryland deals have been in limbo for months due to high-risk brinkmanship by legislative leaders. The idea was to squeeze money out of Republican Hogan for other purposes dear to the hearts of Democrats in exchange for approval of the Northrop Grumman package.Trump, Hogan Agree

That gambit, which was poorly conceived from the get-go, fell apart when the state’s tax collections underperformed, leaving a gaping hole in Hogan’s budget.

Hogan had always balked at legislators’ extortion effort to hold the Northrop Grumman package hostage until local school funds and other goodies were released.

Lawmakers didn’t seemed to care that reneging on the business deal would have sent a terrible message about Maryland’s business climate to corporations thinking about relocating operations.

But the weak revenue figures this fall put an end to this embarrassing folly. There was no money to make the lawmakers’ strong-arm deal work.

Miller-Hogan Find Middle Ground

Hogan, though, still needed to gain the support of legislative leaders not only on the Northrop Grumman economic-development package but also the Marriott headquarters proposal.Trump,Hogan Agree

He and Senate President Thomas V. Mike Miller finally came up with a workable compromise involving $20 million in school pension funds for localities in next year’s budget.

Now it is up to Miller and House Speaker Mike Busch to complete their end of the bargain by winning approval for the two business-assistance packages from a legislative panel they control.

There’s plenty of irony here.

Had a Democrat been in the governor’s office, there’s no question Busch and Miller would have rushed to support these economic-development packages, just as they did under former Gov. Martin O’Malley.

But with a Republican in the governor’s mansion, Busch and Miller suddenly found problems with these deals.

Demands to Stay In-State

Liberal Democrats, in particular, blanch at the thought of giving away millions in business-retention packages, labeling it “corporate welfare.”

It’s become customary for large companies to demand payments from local and state governments if those governments want to prevent these businesses from moving elsewhere. Democrats fear that more companies will use the same tactic to pry millions from the state, money Democrats want spent on social programs.

Rigidly ideological Republican conservatives also rail against giveaways to corporations, complaining about government interference with the free-market system. (Over the weekend, former Alaska Gov. Sarah Palin called the Carrier deal “crony capitalism.”)

The thinking goes that if Carrier wants to move its furnace plant to Mexico or to another state to cut costs, the company should have the freedom to do so. That’s how the free market works, fiscal conservatives say.

Yet Trump intervened to make political hay and win cheers from Carrier workers in Indiana.

At the same time, he did nothing to stop United Technologies from closing another Indiana plant, costing 700 workers their jobs.

Nor did he lift a finger to halt Rexnord from shuttering a factory just a mile away from the Carrier building. The job loss there is 300. Rexnord is moving its manufacturing business to Mexico.

A third company, CTS, is also shutting down an electronics manufacturing facility in Indiana, creating unemployment for 200 more workers.

On top of that Carrier is continuing with plans to downsize its Indiana plant, laying off 600 union workers at the furnace factory. Also, despite Trump’s plea Carrier is moving its fan coil-making business to Monterrey, Mexico.

So while Trump can crow about the one plant he pressured to remain open, saving by his count 1,000 U.S. jobs (the actual jobs preserved: 730), he hasn’t done a thing about the other 1,800 manufacturing jobs being lost in Indiana.

Choosing Winners

The downside of corporate bailouts (Carrier is getting $7 million in tax breaks from Indiana to remain there) is that these small triumphs fail to address the larger problem:  U.S. manufacturing plants increasingly find they are unable to compete against low-cost overseas competitions.

Here’s a hint why moving production abroad is happening: The average salary for a unionized Carrier plant worker in Indiana is $30.90 an hour.

Choosing winners and losers, as Trump did in Indiana, solves little and provides job solace for just a fraction of the manufacturing workforce at risk of losing their source of income. A more comprehensive approach is needed.

Since the beginning of 2015, 1,600 American companies have shifted production overseas. In November alone, the U.S. lost 10,000 manufacturing jobs.

Clearly, Trump has a gargantuan task ahead of him in which a partial victory at Carrier’s Indiana plant doesn’t put a dent in the problem.

At the same time, Hogan is having more success keeping large corporations content with their Maryland digs. All it takes is persistent negotiations, expressions of good will and a basketful of state and county tax breaks, job-training grants and forgivable loans.

It’s worked most of the time for both Democratic and Republican governors in Maryland.

Hogan’s job is far easier because he’s only competing against other U.S. states, not Third World, low-wage countries.

Trump has a much more difficult field to plough.

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Maryland Budget Myths

By Barry Rascovar

Oct. 3, 2016 – Maryland is dealing with another revenue shortfall and a budget that must be trimmed to make the state’s books balance.

Yet to hear Gov. Larry Hogan, Jr. tell it there’s no revenue problem –only “a spending problem” caused by Democrats in the General Assembly.

Let’s get the facts straight on this one: If there’s a problem with spending the buck stops on Hogan’s gubernatorial desk.Maryland Budget Myths

He’s the one who puts together the state’s annual budget. He’s the only one who can increase spending.

The legislature, by law, cannot raise the governor’s budget request. All lawmakers in Annapolis can do is cut the budget.

Who’s Responsible?

Hogan, like Republican presidential nominee Donald Trump, wants to create his own version of the truth.

He refuses to admit he is responsible for submitting a budget earlier this year that is out of balance by some $783 million over a two-year cycle due to a faulty estimate of future revenues.

Democrats share partial responsibility for not cutting more deeply into Hogan’s budget last April. They, too, misjudged the state’s plodding economic rebound from the Great Recession.

It’s no surprise that liberal Democrats are reluctant to reduce spending on social programs.

The irony is that Maryland’s conservative Republican governor failed to clamp down harder on spending in the face of slow-growth revenue numbers.

Hogan’s attempt to turn around and blame Democratic lawmakers for his own budget mistakes doesn’t hold water. He draws up the state’s massive spending plan, not the legislature.

Myth No. 2

The other budget myth Hogan has been spreading is that he can solve the state’s financial woes if only Democratic legislators eliminate spending mandates that lock up over 70 percent of the state’s budget.

Were that to happen, Hogan would have unrestrained power to cut deeply into education and health care programs as well as environmental and social service programs.

It would mean a loss of historic checks and balances between the legislature and executive in favor of an all-powerful governor. No wonder Democratic lawmakers refuse to budge.

Yet Hogan persists in blaming the state’s budget shortfalls on the spending mandates. It’s as though the governor had nothing to do with submitting a budget that failed to exercise sufficient caution.

Plea for Caution

Maryland Comptroller Peter Franchot has repeatedly urged a conservative approach to budgeting in light of an exceptionally slow recovery. Maryland is gaining jobs but not high-paying jobs.

Hogan may proclaim “Maryland is open for business” but he seems not to have noticed a shift in the job market is occurring which requires a conservative governor to take a more cautious approach at budget time.

In putting together next year’s budget, the governor now must reduce earlier spending targets by about 2 percent due to the predicted revenue shortfall. That is eminently do-able.

Judicious reductions and reallocations of program funds could close much of the budget gap.

Hogan has on his staff one of the most creative budget minds in Annapolis – former state Sen. Bobby Neall – tasked to find thoughtful ways to reduce spending while improving efficiency. His suggestions will come in handy over the next three months.

Two Options

Yet deeper cuts will not come about if Hogan continues to blast the legislature for refusing to give him near-dictatorial powers over the state budget.

Fortunately, a middle road exists for the governor to work with lawmakers to make changes in spending mandates that could eliminate Maryland’s long-term structural deficit.

But that calls for Hogan to work cooperatively with the legislative branch – a reversal of form. He knows that criticizing free-spending Democrats wins him votes, even if it makes it nearly impossible to gain General Assembly support for his programs.

Is he willing to alter his approach?

Good governance requires compromise and negotiation between a Republican governor and a Democratic legislature, especially on passage of the state budget. So far, Hogan has fallen short in that area.

He gets another crack at changing his tune early next year.

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Good Larry, Bad Larry

By Barry Rascovar

  March 14, 2016–From day to day, lawmakers in Annapolis don’t know what to expect from Gov. Larry Hogan, Jr.
  Will it be “Good Larry” who moderates his comments, works to find middle ground and comes out making everyone happy?
  Or will it be “Bad Larry” who uses heated political rhetoric; sounds false warnings of doom to energize his conservative base, and alienates the very legislators he needs to accomplish things?
Good Larry, Bad Larry

Gov. Larry Hogan, Jr., with Lt. Gov. Boyd Rutherford, at press conference denouncing spending mandates.

   Perhaps someday Gov. Larry Hogan Jr. will learn how to govern and deal with Maryland’s co-equal branch, the General Assembly. So far, though, it hasn’t happened.
  Most of the time Hogan stays in partisan campaign mode, pretending he can have what he wants simply by reminding legislators of his popularity in polls.

Two to Tango

  Then he bumps up against the hard reality of American politics: Without support from the legislative branch, no state’s chief executive can make headway toward his goals.
  The “Good Larry/Bad Larry” dichotomy was on full display last week in the State House.
On Tuesday, “Bad Larry” went ballistic because Democratic lawmakers aren’t about to gift-wrap for him new budget powers so he can make deeper cuts in spending.
  Yet on Thursday, “Good Larry” mollified those same legislators by adding construction dollars for historically black colleges, by accelerating construction of a biomedical sciences building on the University System of Maryland’s Shady Grove campus, and by giving Baltimore City schools funds to partially offset falling student enrollment.
  It was a bravura Thursday performance after an embarrassing Tuesday display of staged anger.

Hogan’s Dilemma

  The Republican governor can’t decide whether he wants to govern or campaign.
  Governing requires that he be practical and pragmatic, compromising with Democrats so he can achieve partial victories.
  Campaigning requires that he abandon any chance of winning over lawmakers and instead launch a continuous barrage of verbal assaults on Democratic legislators in preparation for the 2018 elections – still two-and-a-half years away.
  Usually, Hogan has chosen to stay in campaign mode.

Distorting the Facts

  On Tuesday, he condemned Democrats for not taking seriously his bill to eliminate many of the spending mandates established by legislators over the years. Asking any legislature to cede budget power to the governor is a non-starter – unless the governor can provide some persuasive reasons.
  Hogan failed to do so.
  Instead, he blamed it on “eight years of financial mismanagement” under the prior (Democratic) governor and Maryland’s current “precarious fiscal situation” on the (Democratic-dominated) legislature.
  Neither statement is true.
  The state’s past fiscal woes stemmed mainly from the deep and long Great Recession. As for that “precarious fiscal situation,” it doesn’t exist at the moment – not when Hogan is sitting on a $300 million budget surplus and $1 billion in a “rainy day” account.

Powerful Governor

  It’s campaign hyperbole, as was the chart Hogan continually pointed to at his Wednesday press conference, the one claiming Democrats seek to impose on Marylanders $3.7 billion in spending mandates this session.
  Hogan already has more budget power than any other governor in the country. He doesn’t need extra authority to short-circuit spending mandates in troubled economic times.
  Why? Because he already can make drastic cuts in two different ways – with approval from the Board of Public Works, or with the cooperation of state lawmakers through a budget reconciliation bill.
  Thus, Hogan’s “mandates reform” is a bogus issue put forward mainly for partisan political purposes.

‘Power Grab’ or Transparency?

  The same is true of his earlier wailing over Democratic bills forcing Hogan to explain the rationale for building roads and bridges that appear to be low-priority items.
  Hogan claimed in almost hysterical terms how this was a “reckless power grab” and a “thinly veiled power grab.”
  It is neither.
  The package of bills doesn’t stop Hogan for doing whatever he wants in selecting the state’s transportation projects. The bills simply force him to explain why he’s picked road project F over road project A on the state’s priority list.
  Senate President Mike Miller clearly explained that these bills remove “the mystery of how, why and where roads get built.” The measures encourage government transparency while leaving intact the governor’s road-selection powers.
  What’s wrong with that?

Good Republicans, Evil Democrats

  Hogan and his second-floor Republican ideologues are good at promoting phantom crises they blame on Democrats. They’re applying national GOP tactics to Maryland: Make this a fight between good Republicans and evil Democrats and point an accusing finger at the party of evil.
  No wonder Hogan has won few legislative victories in a Democratic-dominated General Assembly. At the moment, it looks like he’s headed for a large basketful of defeats this session, too.
  That’s why Thursday’s supplemental budget from Hogan is so intriguing. The governor negotiated deals with Democrats on a host of issues and wound up getting praised by his opponents for working out win-win compromises.
  That victory could set the stage for more moments of Hogan playing the role of Great Conciliator as the General Assembly moves rapidly toward its conclusion.
  But he won’t get very far in that direction if he continues to alienate and infuriate key lawmakers with his “Good Larry/Bad Larry” routine.
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Hogan Wins an Important Victory

 

By Barry Rascovar

Feb. 29, 2016 – Mixing politics and education can be lethal. They are best kept far apart.

That’s why Maryland, for 100 years, has isolated the governor and state lawmakers from the process of choosing the State Superintendent of Schools.

Liberal Democrats in the General Assembly, though, sought to change that.Hogan Wins an Important Victory

They worry that Republican Gov. Larry Hogan, Jr. might fill the State Board of Education with conservative-leaning members who would name a superintendent with a staunchly right-wing education agenda.

So they floated a bill giving the Senate in Annapolis veto power over the selection of a state schools leader.

That was a very bad idea.

Partisan Rubbish

Hogan’s office called it “complete and utter rubbish” and a malevolent attempt to politicize public education. He stood firm and the bill thankfully died.

Imagine 47 politicians with the ability to manipulate this appointment to serve their own partisan objectives.

Wherever politicians impose their will on educators, bad things can happen in the classroom.

Back in 1914, a study by Abraham Flexner, a noted American educator, concluded Maryland’s public schools were “infested with the vicissitudes of partisan politics.” Two years later, the governor and lawmakers built a dividing wall in which the appointed state board members would, on their own, choose a state school chief for a four-year term.

It’s been that way ever since – and it has worked exceedingly well.

O’Malley vs. Grasmick

When former Democratic Gov. Martin O’Malley took office in 2008, he tried to fire Nancy Grasmick as state school superintendent for political reasons. He soon learned he didn’t have the power and that even his appointees to the state education board backed Grasmick.

O’Malley was thinking only as a politician, trying to oust a school chief beloved by his Republican predecessor, Bob Ehrlich, and by another O’Malley foe, former Gov. William Donald Schaefer.

He ignored the fact that under Grasmick’s two-decade reign, Maryland consistently ranked at the top of state school systems offering an excellent public education.

Yet politicians’ urge to intervene and impose their ideological will on schooling remains strong.

Look at the situation in Baltimore City, a troubled city with a troubled school system.

Costly School Reforms

The last superintendent, Andres Alonzo, reenergized city schooling and turned much of the system on its head. But after he suddenly left, the city belatedly discovered Alonzo’s grand plans had been costly, leaving the new superintendent $105 million in the hole.

Indeed, the current city school boss, Gregory Thornton, was brought in largely to make difficult down-sizing choices, which pleased no one. He hasn’t won many fans among community and education activists or with the wannabe power brokers in Baltimore politics.

Baltimore School Superintendent Gregory Thornton

Baltimore School Chief Gregory Thornton

They are demanding that Thornton be canned. They insist he’s had 18 months to work a miracle and he still hasn’t done it.

Mayoral candidates are promising a takeover of city schools, placing education decisions firmly in the hands of the next mayor and City Council. That will fix everything, right?

Wrong.

Very wrong.

Appeasing the Multitude

Decisions on education policies are best left to skilled, experienced education managers, overseen by a school board of non-partisan, concerned citizens dedicated to improving the learning environment for children.

Thornton is no neophyte, either, having had considerable success as school chief in Milwaukee in uplifting minority classroom performance and closing a big budget gap.

He may not have Alonzo’s charisma or the ability to appease the multitude of factions vying to control education decisions in Baltimore, but he’s made headway in the face of enormous urban challenges.

His problems could multiply in coming months unless the very same politicians seeking Thornton’s head find a way to persuade the governor to help city schools fend off a new $25 million budget hole caused by declining enrollment.

Hogan has budgeted funds to help three other counties facing that same predicament, but so far he’s shown no willingness to plug in extra money to deal with Baltimore’s far larger enrollment drop.

It was the governor’s adamant opposition to politicizing the state school superintendent’s appointment that forced legislators to abandon their power grab this year. That’s a huge victory for public school children in Maryland.

Following up with added funds to bolster education efforts in Baltimore would be icing on the cake.

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Barry Rascovar’s blog is www.politicalmaryland.com. His email address is barascovar@hotmail.com

 

 

 

Manly Words, Manly Deeds?

By Barry Rascovar

Feb. 8, 2016 – Though lacking flair and imagination, Gov. Larry Hogan, Jr.’s second State of the State address proved a solid effort with just the right theme: conciliation and compromise.

That leaves unanswered the key question: Will these promising words be followed by matching deeds?

Manly Words, Manly Deeds?

Gov. Larry Hogan, Jr. delivers annual State of the State address in MD State House.

The governor called his speech “A Middle Temperament,” taking a page from Robert J. Brugger’s definitive state history – “Maryland A Middle Temperament 1634—1980” and from Captain John Smith’s written description of the Chesapeake’s munificent bounties in the early 1600s.

Hogan heaped ample praise on himself in the speech, taking credit for everything that went right over the past 12 months in Maryland – even if he had nothing to do with it.

For instance, he raved about Maryland’s job growth and his big budget surplus – both the result of national macro-economic factors in which any governor plays virtually no role.

Education Puffery

He boasted about his record spending on education – though that’s the result of mandated increases in Maryland’s education aid formula. Hogan didn’t lift a finger to make that happen.

He even claimed credit for being the first governor to fully fund a program giving extra education aid to higher-cost counties. This, despite the fact he cut that aid in half last year and only fully funded the program in his new budget because infuriated lawmakers made it a legal requirement.

Hogan also sounded alarm bells about Maryland’s ballooning borrowing costs. Yet the governor did little in his budget to sharply rein in borrowing over the next fiscal year.

Actions, not words, will tell us if Hogan is serious about working with Democratic lawmakers on that and other serious problems the governor discussed in his annual address.

Legislative leaders have plenty of reasons to doubt whether Hogan will follow through on his pledge to “seek middle ground where we can all stand together.”

Partisan Moves

In his early dealings with lawmakers, the Republican governor struck a partisan tone. He refused to meet them halfway. He has continued to shut them out of policy development and rarely keeps them informed about his plans before he makes a splashy PR announcement. He’s been the opposite of inclusive.

He also has lacked consistency.

Last fall, out of the blue, he announced extra education aid for three Republican counties to help them deal with falling student enrollment. Yet Democratic Baltimore City, facing a far larger and more costly enrollment plunge, got nothing.

Then last week, Hogan finally caved to demands from legislative leaders to ante up money promised by the O’Malley administration to support Prince George’s Hospital Center until a new regional medical complex is built.

Hogan did so only after the House speaker and Senate president announced they’d push through a bill forcing Hogan to put up these funds in future years.

Yet Hogan praised his action, asserting such an arrangement was long overdue – as though the O’Malley administration had dropped the ball. It was a transparent re-writing of history.

Missing Demolition Funds

In December, Hogan suddenly announced plans to pour $700 million over a number of years into Baltimore City’s housing demolition program. Yet when Hogan’s budget arrived, the first installment of demolition money wasn’t there, nor an explanation of where all that $700 million would come from.

Hogan blamed Baltimore City for this gap in his budget. He claimed the city had failed to sign a memorandum of understanding (MOU) that had been in negotiation for months.

But wait a minute: There’s no signed MOU for the Prince George’s hospital, either. Yet that didn’t stop Hogan from putting supplemental funds into his budget last week.

Where’s the consistency?

“There is so much we can find agreement on,” Hogan said in his speech. Indeed there is. But it will take more give than take from the governor – a reversal of his style from his first legislative session.

t also will take less partisan one-upmanship, less headline-grabbing announcements that blindside legislative leaders.

The opportunity is there, though, for Hogan to put together a winning legislative record this year. That will mean not only saying the right things about “finding the middle ground” but making the right moves to make compromise possible.

That may not prove popular with his hard-core conservative base, but if Hogan is serious about avoiding a rough road for his priorities and avoiding hyper-partisan gridlock in Annapolis, he’s the one who must take the initiative by backing up his conciliatory words with conciliatory deeds.

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Hogan’s Budget Dilemma

By Barry Rascovar

Jan. 18, 2016 – Tumbling oil prices, a bear market for stock and 401(k) investors and a sharp economic pullback in China and other developing countries could wreak havoc in Maryland as Gov. Larry Hogan, Jr. prepares to release his budget for the coming fiscal year.

Even before lawmakers get a chance to analyze what’s in Hogan’s conservative spending plan, the state’s revenue assumptions for the next 18 months could be out of date.Budget balancingBudget projections made by the state’s Board of Revenue Estimates just a month ago have been eclipsed by the worst-ever start-of-the-year results on Wall Street, historic drops in oil prices and stock market losses totaling a staggering $2.5 trillion in just two weeks.

This bad news comes at a terrible time for Hogan. His budget already has gone to the printers. It’s too late to make adjustments. His fiscal blueprint could be out of sync with January’s realities.

Indeed, if this worldwide gloom persists, the modest economic growth anticipated by Hogan might prove optimistic. The governor’s spending and tax-cut proposals might have to be drastically reduced – even with a large surplus in the bank.

Maryland’s economy is tied to what happens nationally and internationally.

A sharp slowdown in China’s trade hurts the Port of Baltimore and BWI Airport. Ditto for the laggard economic activity in Europe and in emerging countries.

Too Much Oil

The oil glut is leading to 250,000 layoffs in the energy sector, which will mean less work for contractors, subcontractors and suppliers throughout the country, including Maryland.

Maryland’s income tax receipts will be hurt by the plunge in stock prices. Alarmed consumers, already unnerved by talk of terrorist attacks, could continue to rein in their spending, which hurts sales tax collections.

Economists aren’t yet predicting that international woes will lead to a second Great Recession.

But weak growth could make it exceedingly difficult for Hogan to carry out his pledge to cut taxes.

While the Republican governor will propose over $400 million in tax cuts in his address to the Maryland General Assembly this week, Democratic lawmakers aren’t likely to support them if economic conditions make those tax cuts unsupportable.

U.S. Resurgence?

The best news for Hogan would be if the current batch of bad news is replaced by a sharp and lengthy bounce-back on Wall Street and an uptick in consumer spending. The U.S. economy, after all, is in far better shape than the rest of the world.

Still, we live in an era of instant international linkage. What happens in China or France or Iran or Russia affects the U.S. economy. As journalist Thomas Friedman famously wrote, “The world is flat.”

Hogan has little, if any, control over Maryland’s overall economic well-being. He can’t stop the panicked selling on China’s stock exchange, or Iran dumping more oil exports on an oversaturated world petroleum market or a Republican Congress ratcheting down federal aid to the states.

Lower gas prices were supposed to stimulate consumer spending as drivers fill up their vehicles far more cheaply. Yet so far no such bump has occurred.

Low or No Growth

Shaun Driscoll, who manages T. Rowe Price’s New Era Fund, predicts low gasoline prices could persist for the next six months and the oversupply of petroleum might linger for a couple of years.

The U.S. could find itself in a sustained period of low growth or no growth. For Hogan, that would make tax cuts problematic not only this year but in the immediate future, too.

“Risks abound,” the state’s Board of Revenue Estimates warned last month, noting the nation’s economic outlook was “subdued.”

Those observations came before the history-making plunge on Wall Street and disappointing economic news from China.

Volatility around the globe and at home makes it tough for elected officials to accurately predict the future. Extreme caution may become the watchword as budget deliberations begin in Annapolis.

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

Hogan’s Spending Tightrope

By Barry Rascovar

Dec. 21, 2015 – Larry Hogan, Jr. is the ideal governor to take on the difficult task of balancing the need for stronger economic growth in Maryland while at the same time slowing government spending.

Republican Hogan is a committed conservative who gained election by pledging to cut the fat out of state government and lower taxes (eventually).

But Hogan also was elected because he is a pro-business executive intent on slashing business regulation and making Maryland more business-friendly.

The problem is that Maryland isn’t bouncing back strongly from the Great Recession. Tax receipts in Annapolis from consumer-related spending (the sales tax) are still sinking. Taxes from personal income are barely nudging forward.

It’s a sluggish state economy with slow employment growth, little wage growth and new jobs being created at a disappointing pace.

Weak Recovery

November’s unemployment report confirmed Maryland’s agonizingly slow recovery.

Since early summer, the jobless rate has come down but remains above the national average. The number of people out of work is largely unchanged over the past six months. New jobs rose just 16,000 in that period.

The situation is far better than the 7.7 percent unemployment of 2010, yet Maryland continues to lag in job-creation.

All this points to the need for a cautious approach in the next state budget. Revenue growth remains modest. Hogan’s cabinet will have to deliver on the governor’s mandate to trim the size of agencies without harming services that aid Maryland’s underclass.

Restraining government expenditures isn’t all good news, though.

Cutting out state jobs and lowering spending can boomerang and end up harming Maryland’s economic recovery.

It gets tricky for the governor.

Large Surplus Helps

He’s lucky there’s a projected $561 million surplus for next year’s budget. He isn’t likely to dip into that fund to enlarge existing programs as Democrats want him to do.

Indeed, Democratic lawmakers are calling for an expansion of state spending by nearly 5 percent, even though that could be risky.

Hogan’s budget chief assures us the governor will be well under the Democrats’ affordability limit.

But how do you hold down government spending while simultaneously pumping more dollars into jobs and economic growth?

It can be done.

Hogan needs to take one important step: Turn that $561 million surplus into capital spending to build worthwhile projects.

Jobs and Growth

By using surplus cash in this way, Hogan can create good-paying jobs in the construction trades and stimulate growth through the purchase of construction-related goods and services.

Using cash instead of state bonds serves another important purpose. It relieves pressure on Maryland’s costly capital bond program and lowers the state’s expenses not just in 2016 but for the next 15 years.

Paying cash for $500 million worth of new state buildings, rather than issuing bonds, is just what the state needs right now.

A large and continuing pay-as-you-go state construction program would eliminate a huge amount of future debt. It would trim Maryland’s long-term structural operating deficit by a substantial margin.

There’s an added bonus in a large “pay-go” construction program if it is focused on buildings that can lead to long-term economic growth.

Hogan can fortify the Baltimore area’s importance as a generator of health and technology advances (and jobs) by supporting a third health-sciences research tower at the University of Maryland, Baltimore; a life sciences building at UMBC, and a behavioral and social sciences building at Morgan State University.

Constructing a $100 million bioengineering building at the University of Maryland, College Park would do the same thing in the Washington suburbs.

Spurring Economic Growth

A cash investment of roughly $300 million in these science-related structures would be a wise use of the surplus – no interest payments or principal payments in future years.

The economic-development potential tied to such research and education-related buildings could spur job growth in key industries for years to come.

Hogan is walking a tightrope in trying to trim state government’s size and expenses while simultaneously enhancing Maryland’s economic-growth prospects.

If he uses the state’s projected surplus strategically, he can achieve equilibrium that might achieve both goals.

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Transparent Political Ploy on Surplus

By Barry Rascovar

Nov. 9, 2015 – When Democratic legislators announced last week that a huge budget surplus would make it possible for Republican Gov. Larry Hogan, Jr. to reverse his earlier decision to cut $68 million in school aid, it was the equivalent of beating a dead horse to death.

(That’s an idiom occasionally used by unlettered Maryland politicians.)

Transparent Political Ploy on Surplus

Asking a politician of the opposite party to recant his prior action is a waste of time and energy. It’s not going to happen.

Democrats are doing it only to gain propaganda points. “Look! See! Larry Hogan is such a meanie he won’t use surplus funds to educate our children!”

Instead of trying to embarrass the governor, Democrats should have suggested practical ways for Hogan to spend this money wisely. That, at least, would be within the realm of possibilities.

Big Bucks?

The surplus could top $700 million. That sounds like a lot of money but it is a one-time happening. It can’t support a major tax cut, or any other tax reduction – Hogan’s prime objective.

It would be a horrific mistake if Hogan sought tax relief based on a one-year surplus.

Maryland’s budget is precariously balanced. Another dip in the nation’s economy would send the state back into the red.

Sharply reducing taxes on the basis of one good fiscal year isn’t sound fiscal policy.

So how should the governor spend this extra cash?

Thoughtful Democrats and Republicans understand these one-time dollars are best used to pay for one-time spending projects – primarily purchases of badly needed equipment and construction projects.

Bonds, Bonds, Bonds

Maryland has a long-range financial crisis because the state overspent over the past 15 years by  issuing too many construction bonds. Under Governors Bob Ehrlich and Martin O’Malley, the amount of new bonds issued each year jumped from $400 million to $1 billion.

Each of those bonds must be paid off, with interest, over 15 years. The compounding effect of issuing more and more bonds each year is staggering.

Two years from now, Maryland will max out its bonding capacity. Meanwhile, state taxpayers are spending in excess of $1.1 billion this fiscal year to pay the principal and interest on that growing mountain of bonds.

Hogan has a rare opportunity to make significant headway in turning around this out-of-control borrowing situation.

He might, for instance, use most of that surplus on a giant pay-as-you-go school construction program instead of issuing bonds. Thus, he’d be using only surplus dollars to fund Maryland’s school-building efforts.

And if he’s smart, he’d also use surplus dollars on another important school need: air-conditioning every single classroom in Maryland. It is shocking how many classrooms statewide lack even a window air-conditioner, not to mention central A/C.

Fewer IOUs

By using cash for these projects, Hogan would lower Maryland’s future bond obligations and the state’s future interest payments. A $400 million pay-go program for school buildings (including an A/C funding provision) would be a bold and sensible way to get a major fiscal problem under control.

Hogan also could use a portion of the state’s one-time surplus for other important construction activities.

He has the chance to set up a win-win situation at the old Bethlehem Steel plant at Sparrows Point by dedicating surplus dollars to bridge and interstate access improvements.

Those would be critical steps in jump-starting what could become Maryland’s largest and potentially most successful economic development initiative.

Additionally, the state’s current surplus could let Hogan set aside a substantial pot of funds to accelerate Baltimore’s vacant housing demolition program and help build safe, green neighborhoods in Maryland’s most troubled and largest city.

Democrats were foolish to try to politicize the announcement of a large state surplus. They sought to create conflict instead of an atmosphere of cooperation and mutual decision-making.

Hogan is right to ignore this transparent political ploy.

Instead, he should distribute those surplus dollars to one-time projects that are fiscally conservative and beneficial in the long run for Maryland.

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State Pension Confusion

By Barry Rascovar

August 10, 2015 — For Maryland’s 388,500 state workers and teachers — active and retired —  interpreting the pension news these days is confusing business.Maryland retirement agency logo

Item: Over the past 12 months, the state’s pension fund gained 2.68 percent on its investments.

Is that good or bad?

On June 30, the fund’s market value stood at $45.8 billion, a gain of $400 million over the prior fiscal year. All well and good.

But the state failed to come close to hitting its investment target of 7.65 percent. That’s not so good.

Mystifying, isn’t it?

Manipulating Numbers

Welcome to the fuzzy world of actuarial pension and retirement funding. Depending on the statistics and the way they are manipulated, your retirement accounts may be in fine shape or in the toilet.

Since the media loves bad news, headlines routinely give prominence to the state’s unfunded pension liabilities of nearly $19 billion.

What’s not headlined is the slow progress being made in reducing that actuarial shortfall or the misleading way that number is bandied about.

What needs to be kept in mind is that pension investing has an extended timeframe. That applies to the state retirement fund as well as folks contributing to their IRAs.

As the retirement board’s manual notes, “The investment strategy is long-term, recognizing that the average age of the System’s liabilities is relatively long.” It also notes that taking a long-term view of pension investments “could result in short-term instability.”

Ups and Downs

Over the past five years, the state’s investment returns have been darned good, raising the market value of its holdings from nearly $32 billion to nearly $46 billion. That’s an annual average rise of 9.4 percent.

Let the good times roll!

Yet good times don’t last forever. And they didn’t in the last fiscal year, with stock markets delivering an uneven performance. That downer has persisted into this year, too.

The moral is not to get caught up in year-to-year market reports and investment reports. As long as returns are heading upward by a decent amount over the decades, things will come out all right in the end.

What worries critics of the state retirement fund is that the program falls far short of being fully funded. That actuarial ratio stood at roughly 69 percent last year (or 72 percent if you look at the fund’s market value).

Ample Reserves, Ample Time

Here’s the catch: The state doesn’t need to be fully funded today. It has ample reserves to write current pension checks to former teachers and state workers. The rest of its IOUs will come due in the years and decades ahead as the fund’s active members start to retire.

Some will do so soon but the bulk of active teachers and state workers will be at their jobs for one, two or three more decades. The retirement fund has plenty of time to accumulate the dollars needed to write those future checks.

Pension reforms instituted belatedly by the General Assembly in 2011 are now kicking in. This means higher contributions from active members, a less generous pension plan for newer workers and an increase in what state government pays into the pension fund each year.

Past and present legislators, though, often tend to play games with the state’s annual contribution to the retirement accounts. Sometimes they re-write the law so they can adjust the state’s payment by $50 million, $100 million or more to bolster a favored program or balance the budget.

Governors over the decades have been known to play that game, too.

Still, the state’s pension board seems on a path to reach 80 percent of full funding within 10 years and 100 percent of full funding within 25 years — regardless of the ups and downs of the stock market and politicians’ tendency to see the state’s mandatory pension payments as “flexible.”

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