Budget cuts renew debate over mandated spending, taxes

A proposal by Gov. Larry Hogan to trim the state budget has renewed a debate over ways to tame the state’s budget.

The first-term Republican governor will seek approval of the Board of Public Works, which he chairs, to trim more than $67.2 million from the current state budget. The purpose, according to state Budget Secretary David R. Brinkley, is to create a cushion for the coming budget year.

And while Hogan has repeatedly called for easing the formulas that are now driving state spending at a rate that is growing faster than revenue, Democratic lawmakers and others have different suggestions.

A budget ‘priority’

The longer term solution, according to Brinkley, requires a serious look at so-called mandated spending — programs that are legally required to be funded, many of which with formulas that ensure growth year-over-year including K-12 education, which every governor annually issues press releases that brag about new record levels of funding.

“Take the word mandate and substitute the word priority,” said. Del. Maggie McIntosh, D-Baltimore City and chairwoman of the House Appropriations Committee. ” Education is a priority. Public safety is a priority.”

McIntosh and other Democrats were rankled by an announcement last week that Hogan will seek to cut the budget mid-year even though there is no signs of impending revenue decreases — something Brinkley confirmed to reporters in a conference call last week.

McIntosh said Hogan, as with other governors, could make adjustments in January when the next budget comes due.

The cuts, however, serve another purpose, including a year-to-year approach that has dominated state budgeting for years.

Brinkley said the mid-year reductions are meant to build a cash cushion as Hogan looks for ways to deal with a nearly $750 million gap between expected spending and revenues in his coming fiscal 2019 budget.

“We’re trying to do this to prepare so we’re in the best position possible to deal with the (fiscal 2019) budget,” Brinkley said.

“Keep in mind that we’re dealing with this problem because of the mandates,” Brinkley said.

Tax revenue in the state is growing at a rate of slightly more than 3 percent annually. Spending is growing faster still, increasing at a rate of more than 5 percent.

“The governor has tried and he is going to keep pounding away at the message that these mandates are driving this structural gap,” Brinkley said. “He’s offered different remedies and he’s going to continue to look for a solution to that.”

Safety valves

In previous years, Hogan has proposed legislation that would create a budgetary safety valve of sorts, allowing the executive to ignore spending mandates when revenues aren’t expected to increase by more than 2 percent over projections made the previous December.

Hogan’s past proposals, which has been rejected by the legislature, would affect about two-thirds of required spending but exempted items including  K-12 education, state pensions, the state’s rainy day fund and payments on state bonds.

“Mandated spending, entitlements, are programs that help people who are living in poverty,” said Sen. Richard S. Madaleno Jr., D-Montgomery County and vice chairman of the Senate Budget and Taxation Committee.

“If he wanted to tackle this problem, he could do it,” said  “He could do things he finds politically unpalatable.”

Included in those solutions are extending the state’s 6 percent sales tax to services and online sales. Both would contradict Hogan’s vow to not raise taxes.

“He doesn’t want that,” said Madaleno, who is also an announced Democratic candidate for governor in 2018. “He’s backed himself into a corner with his rhetoric.”

A solution may lie in the middle, according to Warren Deschenaux, the legislature’s top budget analyst.

Time to ‘get real’

Deschenaux told lawmakers earlier this year they needed to “get real” about state budget problems and pointed out the gap between spending and revenues.

“Nothing is free,” Deschenaux said.

A part of the solution could include extending the sales tax as Madaleno suggested as well as limiting automatic increases for state employees — something Democrats might object to. Another option could lie in setting new baselines for mandated spending so that formulaic increases would be based on what was spent rather than the higher figure contained in the budget as passed.

But Deschenaux said such agreements would require the legislative and executive branches have historically avoided, defining their fiscal strategies.

“We seem on track for going year-to-year indefinitely,” Deschenaux said. “In terms of an overarching fiscal strategy, both sides may have them but none has articulated it.”