Hogan begins taming Maryland’s structural deficit

Gov. Larry Hogan high fives children at Earth Day tree planting. (Photo by Tom Nappi, Governor’s Office)

Can Republican Gov. Larry Hogan Jr. tame Maryland’s long-standing structural budget deficit? Judging from his first stab at it, he’s more than halfway there.

But high hurdles lie ahead if he is to reach the point where the state’s ongoing revenues far exceed annual spending.

Hogan may grumble to appease conservative groups about the remaining $206 million structural imbalance in the budget that’s been approved for the fiscal year starting July 1.

Yet that is a sharp reduction from the deficit anticipated back in November of a $525 million shortfall under Democratic Gov. Martin O’Malley.

Not too shabby

The General Assembly’s Department of Legislative Services (DLS) says Hogan is 68 percent of the way toward wiping out the structural imbalance — and if he continues to hold firm in denying state workers a 2% pay raise starting July 1, he will reach 82 percent of his goal.

Not too shabby for a Republican governor facing an overwhelmingly Democratic legislature.

Those deficit numbers will grow somewhat if Hogan decides to give Democratic lawmakers some of the $202 million they asked him to restore to various education, health and wage programs.

Still, Hogan begins preparations for his second budget in remarkably good shape.

It’s no secret that the Big Three growth items in Maryland’s budget are: 1) soaring debt service payments; 2) continually rising education aid, and 3) ever-rising health-care costs.

Debt service alone will jump by $167 million next year. It has tripled in the last three years. Hogan needs to take a hard look at reducing or slowing Maryland’s issuance of general-obligation bonds, including the always popular school construction allocations, which in July’s budget will hit a record $380 million.

Complicating matters for the governor is Maryland’s too-slow economic recovery from the Great Recession.

DLS estimates state revenues will grow in fiscal year 2017 by a modest 4 percent. Yet it will take a 5.7 percent growth rate in tax collections to balance spending with revenue.

Economic development is the key, though that’s a long-term proposition. Hogan’s “Maryland is open for business” theme won’t result in major tax gains for the state any time soon. So the governor will have to continue tightening state agency spending and find areas where deeper cuts can be made without creating a harsh legislative backlash.

Ratcheting down the structural imbalance over the next three years is Hogan’s best option. The problem is that he’s also determined to deliver on his main campaign promise — lower taxes.

Simply balancing the state’s books won’t be enough. He’s got to go further so he can justify a tax cut that does not create a new structural deficit.

That’s where Hogan’s problems multiply. Aid to local governments seems a likely target, until you start to pull the plug on specific spending programs, like money for schools, police, fire-fighting, the poor, libraries and parks.

Indeed, almost every area of state government spending affects huge numbers of Maryland citizens. Hogan must take care not to antagonize too many of them. If he does, he could be harming his re-election chances.

Looking down the road, Hogan faces even more daunting budget difficulties, Indeed, DLS puts the state’s combined deficit at $1.165 billion for fiscal years 2019 and 2020.

As bad as this sounds, it is a huge improvement over what O’Malley left behind: a combined estimated deficit for those two years of nearly $2 billion. Hogan reduced that future imbalance by 41 percent in his first budget.

Fundamental spending changes won’t be possible with Maryland’s Democratic legislature acting as a brake on Hogan’s budget-cutting tendencies. That’s why the slow-but-steady approach makes so much sense.

It won’t please Hogan’s absolutist supporters, but gradualism could prove the most practical and politically astute path for Maryland’s Republican governor.

Barry Rascovar’s writings can be found at www.politicalmaryland.com. He can be reached atbrascovar@hotmail.com