Hogan warns of dire Md. budget situation

ANNAPOLIS — Gov.-elect Larry Hogan said he is giving his budget team 10 days to deliver a plan to impose a balanced budget for each of the next two years.

Hogan, in a briefing with reporters, said that the state faces significant budget challenges including a nearly $300 million shortfall in the current budget as well as a project structural deficit for the Fiscal 2016 budget that he will have to deliver to the General Assembly two days after he is sworn in.

“Our state is facing a budget crisis that has the potential of impacting us for years to come,” Hogan said. “The problems that we have uncovered are great but so is our resolve to fix them.”

Former state Sen. Robert R. Neall, Hogan’s leading budget adviser, said state spending is out of line with revenue.

“The state’s fiscal condition is a very serious one. It is not one that has happened overnight. Maryland has been struggling with a so-called structural deficit for many years, possibly for over a decade.”

Neall said a number of state programs are growing at rates faster than revenues, including pension payments, the “state’s commitment to the Medicaid program” and the payments on state bonds — which has grown larger in recent years as Gov. Martin J. O’Malley has used cash from dedicated funds to offset budget deficits while replacing that cash with borrowed money.

Debt service on that borrowing is outpacing the revenue generated by the state property tax, which is dedicated to pay for the bonds. The difference is paid out of the state general fund.

By fiscal 2019, the gap between the property tax revenue and the amount owed will exceed $500 million. Neall said failing to control the situation now could have dire consequences.

“There will be no money for pay raises,” Neall said. “No money for new programs. No money to buy pencils. This is the track that we’re on.”

Neall said controlling the situation will “take a good eight to 10 years and some discipline in issuing new debt.”

“We have to set a clear set of fiscal decisions that are grounded in sound fiscal discipline,” Neall said.

Neall said the Hogan administration is working with T. Eloise Foster, O’Malley’s budget director, to help reduce state spending in the last six months of the current budget year.

Last week, an O’Malley spokeswoman and the University System of Maryland confirmed they were reducing spending, including freezing hiring and spending, in an attempt to offset the budget gap.

Neall said part of that sound fiscal discipline for the coming budget will include “a thoughtful departure from the way things have been done and preparing that budget is going to require a rebasing of every major expense that we have any flexibility over.”