ANNAPOLIS — A budget gap of nearly $900 million will be waiting to greet Gov.-elect Larry Hogan when he takes office in January.
Budget analysts told a joint legislative committee that a sluggish economy and lower-than-expected revenue will leave a $291 million budget deficit in the current year. An additional $593 million structural gap is projected for the fiscal 2016 budget— a budget that mostly will be the work product of Gov. Martin O’Malley.
Warren G. Deschenaux, director of the Office of Policy Analysis, told the state Spending Affordability Committee Wednesday that Hogan and the incoming legislature have two choices in dealing with the projected structural deficit, which is projected to approach $1.1 billion in fiscal 2020.
“Increase economic activity or change the tax structure in Maryland,” Deschenaux said.
In large part, the lower-than-expected revenue is driven by wage and employment stagnation. Year over year, job growth in the state stood at just six-tenths of a percent in September. Wages and salaries grew at 2 percent, about half the national average.
Additionally, cuts to federal spending have caused a drag on the state economy. More than 5 percent of all jobs in the state are federal government positions, more than twice the national average of 2 percent.
Of the dire projections of billion-dollar deficits in five years, Deschenaux said, “none of these numbers will come to pass” because the legislature and governor will ultimately make adjustments. The harder work, he said, is in permanently aligning spending with actual revenue rather than “chasing your tail by filling gaps on a yearly basis.”
“That’s the challenge for the next administration and legislature,” Deschenaux said.
The Spending Affordability Committee will meet again in December to set recommended limits on the growth of the state budget.
Sen. Edward J. Kasemeyer, D-Howard and Baltimore counties and chairman of the Senate Budget and Taxation Committee, called the budget briefing sobering.
“The thought you have to consider is we’ve been — all of the measures we’ve taken in the past were based on the thought that the economy would come back,” Kasemeyer said; but now, legislators need to consider the possibility the economy “is not going to come back at the level we assumed.”
Del. Kathy Szeliga, R-Baltimore and Harford counties, said the news is a dose of reality for the incoming governor.
“Welcome to Annapolis,” Szeliga said. “Now figure out where to find $300 million.”
Szeliga said Hogan, who ran an anti-tax campaign, has an option beyond raising taxes or increasing economic activity.
“Whatever happened to cutting spending?” Szeliga said. “That’s the third leg of this stool.”
Former Sen. Robert R. Neall, whom Hogan named on Wednesday as an adviser on budget and tax issues, simplified the issue by calling it a math problem.
“It’s arithmetic,” Neall said. “It’s ugly arithmetic but it’s arithmetic.”
Neall added that there would be “a lot of little time bombs that will need to be defused.”
Neall said Hogan would have roughly seven months to fill the gap in the current budge, but a much shorter time to tweak a fiscal 2016 budget that will essentially be built by O’Malley and delivered to the legislature in January.
Ultimately, he said, he believes Hogan will focus on getting spending and revenue aligned.
“He wants straightforward, wholesome budgets,” Neall said, adding that getting there will take time.
“It took eight years to get to this point,” Neall said. “It will take at least four to make some significant progress.”