Virginia and Maryland: Similar challenges, different messages

Is Virginia awash in money while Maryland is awash in red ink??

No.

The two states’ financial situations are remarkably similar. Both states had significant balances as they closed their fiscal years last June 30. Both states have balanced budgets in place through June 30, 2012.

However, both states used an array of temporary measures to achieve that balance. Their ongoing revenues do not cover the needs for public schools, colleges and universities, health programs, public safety operations, and the other services state governments provide.

As a result, both governors will face new revenue shortfalls when they write their proposed budgets next winter.

Virginia’s governor Bob McDonnell stated: “…We have ended the 2011 Fiscal Year with a surplus of over half a billion dollars. This is the second year in a row that we have posted a budget surplus.” He was bragging about the Commonwealth’s   unanticipated revenue plus unspent appropriations at a single point in time in the past.

Maryland has not yet announced its fiscal year-end surplus. However the state anticipated a $647 million balance when it approved this year’s budget in April. Since then, Maryland’s Comptroller has announced that revenues for the year were running $300 million over the previous official estimate. So the fiscal year-end balance is going to be about $950 million in surplus. In addition, Virginia has depleted most of its “Rainy Day” reserve fund, while Maryland’s still holds 5% of annual revenues.

Two days after McDonnell’s announcement, Maryland’s Governor Martin O’Malley told a convention of county officials, “While we do anticipate revenues to exceed what had been originally been forecast for FY12 and FY13, our projected budget fall for 2013 is approximately $1 billion.”

O’Malley is worried about the state’s financial stability into the future. (The improved revenue attainment might reduce Maryland’s shortfall, but there are also unanticipated costs in programs like Medical assistance and prison operations. So the best guess for Maryland’s shortfall remains around $1 billion.) This slideshow summarizes Maryland’s budget position.

Although Governor McDonnell isn’t talking about it, Virginia faces an analogous problem. Through fiscal 2013, the Old Dominion’s revenues are projected to fall $500 million short of funding even current operations.

This report from Virginia’s Commonwealth Institute documents the revenue shortfall looming in Richmond.

And current funding levels reflect four years of constant budget-cutting. In both states, services from schools, to roads, to medical coverage are already inadequate.

Both states have money in the bank today, but face serious shortfalls in the future. Maryland’s projected shortfall is larger, but so is its current surplus. The overall sizes of the two states’ budgets are roughly comparable: $15 billion in Virginia and $13 billion in Maryland.

Maryland Governor O’Malley has signaled that he will propose a “balanced approach” that includes spending cuts and revenue measures. That’s the proper course. If we continue to balance the budget with cuts alone, we’ll sacrifice the investments we have made in a skilled workforce, a great transportation system, and a high quality of life. Those are the things that give Maryland its competitive edge, and will sustain our ability to compete successfully in the future.