Survey Results Highlight Economic Anxiety Among Workers, Importance of Assistance Programs

Many Americans are still feeling the effects of the Great Recession, and the recovery thus far has been skewed toward the wealthy. As the economic and employment prospects of moderate and low income Americans remains tenuous, safety net programs for those who face economic hardship are increasingly important, but remain under attack.

Yesterday, the Washington Post highlighted the difficulties that moderate and low-income Americans continue to face in an uncertain economy. In an article that centered on the findings of a University of Virginia survey and others, the Post vividly described the anxiety that workers face, and how their feelings about their prospects have worsened over time. To summarize:

Current Attitudes	Comparison from Previous Surveys
54 percent of workers making $35,000 or less worry “a lot” about losing their jobs	37 percent of workers making $35,000 or less worried “a lot about losing their jobs in 1992 and 1975
85 percent of lower income fear that their families’ income will not be enough to meet expenses	60 percent of lower income feared that their families’ income will not be enough to meet expenses in 1971
32 percent of low income workers worry all the time about meeting expenses	This is almost three times the number of people who felt this way in the 1970s
More than 6 in 10 workers worry they will lose their jobs because of the economy	According to the Post, today’s worries exceed those in 1975, a time of recession marked by high unemployment and high inflation.

These finds bring into stark relief the way in which low and moderate income workers have been left out of the economic recovery since the great recession. At a time when the stock market is reaching record highs, the University of Virginia survey shows that many feel like their economic prospects have only worsened in recent years.

Economic anxiety is particularly acute among low income workers. Intense worry about possible job loss is 29 percent, among workers with incomes between $35,000 and $75,000, and drops to 17 percent for those with incomes above that level. This is the result of increasing inequality, stagnating wages, and declining wages among those with low incomes. Since 2000, average household incomes for the poorest 40 percent of workers have fallen by more than 10 percent, according to the Post. As we showed in our State of Working Maryland 2012 report, while incomes for most have stagnated, incomes for the wealthiest residents have increased dramatically:

Change in Real Annual Household Income by Income Group, 1979-2007

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Data source: Congressional Budget Office, 2010

In this context, government safety net programs play an important role in assisting those whose worst economic fears are realized. However, these programs face erosion and attack, as unemployment benefits for 2.1 million workers are set to expire at the end of the year absent Congressional action, and nutrition assistance benefits have already decreased after being expanded by the post-recession economic stimulus and face calls for further reductions from lawmakers. In their ‘Hardship in America’ series, the Center on Budget and Policy Priorities highlights the tough times that many workers face and the programs that help alleviate poverty, such as the Earned Income Tax Credit, housing and food assistance, and unemployment benefits.

Fortunately, Maryland maintains important programs to help moderate and low-income workers such as its own Earned Income Tax Credit and expansion of Medicaid which starts in 2014. As state lawmakers face tough decisions on the state’s budget in the upcoming legislative session, it is important that they prioritize the economic security of Maryland’s workers and maintain and expand programs that help workers amid an economic recovery that has largely excluded them. 

Montgomery County Council Raises Minimum Wage to $11.50 by 2017

Yesterday, the Montgomery County Council voted overwhelmingly to increase the county’s minimum wage. The current minimum wage in the county is the same as the state and federal minimum wage, $7.25 per hour. Under the plan passed by the council, the county minimum wage will rise in annual increments: to $8.40 in October 2014, $9.55 in 2015, $10.75 in 2016 and $11.50 in 2017.

The Washington Post characterizes these efforts as “part of a national movement by state and local governments to address growing wage inequality where Congress has not.” Indeed, the move by Montgomery legislators is part of a coordinated regional effort alongside the District of Columbia and Prince George’s County. Lawmakers in Prince George’s are now expected to pass a similar measure today on the minimum wage after having delayed action until Montgomery held its vote on the wage. The District is expected to follow suit shortly on some version of a minimum wage increase.

It is important that state lawmakers follow the lead of Montgomery County and raise the minimum wage in the upcoming legislative session. For the past forty years workers have lost buying power, even as. Raising the minimum wage would increase the earning of households with low-wage workers. Because those with low and moderate incomes are more likely to spend the additional income they receive, putting more money in the hands of these workers would also boost the local economy. Further, polling finds that most Americans support raising the minimum wage, as do a majority of Maryland residents.

One final note: Montgomery County decided not to index their minimum wage increase to inflation, and they excluded tipped workers from consideration (although employers are still required to pay tipped workers the state minimum wage if their tips aren’t sufficient). The General Assembly should include an inflation index and protect tipped workers when it takes up the state minimum wage bill in January. Furthermore, the enforcement mechanism for Montgomery County’s minimum wage is also unclear and may require state action. Stay tuned for more updates on this important issue.

MD unemployment rate 6.7% in Sept/Oct

Maryland's unemployment rate was 6.7 percent for the past two months, according to data released today by the Bureau of Labor Statistics (BLS).  This is down from 7 percent unemployment in August.

In part this decrease is due to about 9,500 fewer unemployed Marylanders, and about 8,400 more who are now employed. Both these numbers are headed in the right direction, which is heartening.

However, there are also still 29,300 fewer Marylanders in the labor force compared to the peak last January. A smaller labor force helps the unemployment rate go down, but it hurts our economy. Some may leave the labor force due to retirement, to return to school, or through migration. However, BLS only counts those who have been working or actively looking for work recently as members of the labor force.  Many folks who would like to work fall off the count because they have been unemployed for so long that they are too discouraged to look for work.

BLS provides us with state employment figures every month. They are an important metric of how our economy is doing, but they don't tell the whole story. The next time these figures are released, go to the Local Area Unemployment Statistics page on BLS's website, click on the Maryland link on the right-hand sidebar, and look at the graphs they provide (pay attention to the scale of the y-axis, and make sure you're looking at seasonally adjusted data). You'll be able to see how the latest data corresponds to peaks and troughs, and trends over time. But remember that the graphs only tell part of the story, so keep reading this blog for more insightful analysis of Maryland's economic policy landscape.

Spending Affordability Committee Meeting Addresses Spending on Mass Transit, Pensions, and the Reasons for Decreased Revenue Projections

Yesterday we discussed the November meeting of the Spending Affordability Committee and highlighted its concerns about increased borrowing costs crowding out the ability to pay for new initiatives and savings that Maryland is seeing from implementing the Affordable Care Act. Today we will conclude our coverage of the November meeting by highlighting its findings regarding transportation spending and pension reform and look ahead to the committee’s final meeting before the start of the 2014 legislative session.

Department of Transportation Budget

The Department of Legislative Services noted that the transportation budget ended the 2013 fiscal year with more money than planned, both due to less spending and more revenue than expected. Spending on mass transit, including the Red and Purple lines, will increase in the coming years and peak in 2018, though total spending on roads and highways remains higher than spending on mass transit during this time.

Capital Spending on Transportation by Category, 2014-2019

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Note: “Other” comprises the Secretary’s Office, the Maryland Port Administration, the Motor Vehicle Administration, and the Maryland Aviation Administration. “Mass Transit” includes the grant to the Washington Metropolitan Area Transit Authority.

Data source: Maryland Department of Transportation, 2014 draft Consolidated Transportation Program; Image source: Spending Affordability Committee Briefing, November 2013, p. 14.

A recent panel of transportation experts convened by the Greater Baltimore Committee praised the recent passage of the Transportation Infrastructure Investment Act which increased transportation funding via a gas tax increase and other revenue-raising measures such as bus fares and vehicle registration fees. According to Maryland Reporter, the panel rightly agreed that “expanding public transportation was key to a prosperous and sustainable future for Maryland.”

Pension Reform and Local Taxes

DLS analysts showed that while unfunded liabilities have leveled off rather than continuing to grow after the state government shifted some of the costs of teacher pension contributions to country governments, “[l]imited revenue at the local level resulted in seven county governments raising at least one major local tax in fiscal 2014 in order to balance local budgets.”

Under the Spending Affordability process, which is established by Maryland law, the committee makes recommendations aimed at limiting the growth of the state budget for the upcoming year, though its recommendations are not binding. This month’s briefing focused on Maryland’s Capital Budget, which is composed of construction projects and other long-lasting assets. Last month, the Spending Affordability committee warned that the state is likely to face an $87.6 million budget deficit after initially expecting a surplus. DLS Policy analysis Director Warren Deschenaux said the new forecast of lower revenue can be blamed on “our colleagues down Route 50,” referring to the disagreements among federal lawmakers regarding the budget that have lead to policies and other actions that have hurt Maryland’s economy, such as sequestration and the recent Government shutdown.  The Spending Affordability Committee will meet again on December 18 to make its final budget recommendations to Maryland lawmakers before the upcoming 2014 legislative session. 

November Spending Affordability Briefing: Increasing Debt Service Costs, Savings from Affordable Care Act

At its November briefing of the Spending Affordability Committee, the Department of Legislative Services urged state lawmakers to maintain current levels of debt, citing increased debt service costs in the coming years. DLS also noted that Maryland will both save money and provide more residents with health coverage due to its implementation of the Affordable Care Act (ACA).

Legislature Urged to Keep Debt at Current Levels

At the briefing, DLS analysts warned of increasing costs of debt service, the money required to pay the interest and principle on bonds that Maryland has issued. DLS forecasts that these costs will crowd out Maryland’s ability to spend money on other projects in the coming years.

The analysis and recommendation are in part a response to Governor O’Malley’s request, backed by the Capital Debt Affordability Commission, to increase debt authorizations by $75 million annually between 2015 and 2019 for the purpose of funding Maryland’s Watershed Improvement Plan.

According to the DLS, doing so will increase debt servicing costs by $43 million during this period. However, this is the result of not only increased borrowing but also a decrease in revenue from state property taxes. Property taxes, which are used to fund debt servicing, have been down as a result of the housing collapse and Great Recession, which caused housing prices in Maryland to decline for 55 months in a row. Prices have started to increase since February 2012, but because property tax revenues lag real estate market trends, DLS expects that property tax revenues will stabilize and start to increase slightly beginning in 2016.

In the meantime, debt service costs are expected to increase by 6.1 percent annually while property tax revenues are projected to increase by half a percent annually. As a result, DLS projects that beginning in 2014, an increasing amount of General Fund Revenues will be needed to pay for debt service each year.

In addition, there are more requests for funding from the capital budget than there are dollars: more than $1 billion in requests compared to just $320.4 million in unallocated funding.

DLS therefore argued that maintaining debt at current levels rather than increasing borrowing is “the remaining lever to provide relief from this ongoing fiscal squeeze” available to lawmakers.

Affordable Care Act Saving Maryland Millions

The other key theme of the November meeting of the Spending Affordability Committee was that DLS projects that Maryland will see “significant general fund savings” as a result of its implementation of the Affordable Care Act. What is most noteworthy is not just that the state will save money, but that it will do so while also providing health coverage to more residents. DLS finds that Medicaid enrollment will increase at a greater rate both because Medicaid eligibility has been expanded and because increased publicity from the Maryland Health Benefit Exchange marketing campaign is leading residents that were previously eligible but not enrolled to sign up.

General Fund Savings Attributed to the Affordable Care Act in the Medicaid Forecast

Fiscal 2014-2019

($ in Millions)

Source: Department of Legislative Services Spending Affordability Briefing, November 14, 2013.

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These savings are largely the result of increased federal funding to implement the ACA. Maryland’s Primary Adult Care Program will end on January 1, 2014 as the single adults currently in this program will be eligible for the expanded Medicaid program which is mostly funded by the federal government. Combined with other sources of increased federal funding for health care programs, these savings are more than enough to offset costs that Maryland will bear to implement the ACA.

Check back tomorrow for the rest of our briefing summary.

DLS Report Shows Trade-offs from Reducing Corporate Income Tax Bring More Harm than Good (Updated)

The costs of reducing Maryland’s corporate income tax rate outweigh any potential benefits, according to a recent report from the state’s Department of Legislative Services. Reducing the rate has received renewed attention in recent months, but this report should serve as a warning to policymakers of all stripes.

The corporate income tax is an important source of income for the state. In fiscal year 2012, Maryland raised $877.9 million through the corporate income tax. This represented 5 percent of general fund revenue. These funds pay for many important programs and services—such as education, transportation, and health care—that benefit Marylanders and businesses alike.

The DLS report projected the revenue that would be lost each year if Maryland were to reduce its corporate income tax rate by 1 percent, from the current rate of 8.25 percent to 7.25 percent:

(Click to enlarge all figues)

The DLS projects that the total cost of a 1 percent corporate tax reduction over ten years is just short of $1.4 billion.

In light of recent projections indicating that Maryland will face a structural budget deficit in the upcoming year and the constitutional requirement to pass a balanced state budget, any loss of revenue from the corporate income tax must be offset by some mix of spending reductions or additional revenues from other sources. The DLS report models two different scenarios: one in which a loss of revenue is offset solely through reduced government spending, and another in which lost revenue is offset through an increase in sales taxes. The DLS projects consider the impact of these scenarios on employment in the state, disposable income available to residents, and economic migration in and out of Maryland.

Scenario 1: Reduce Government Spending to Match Reduced Revenues

The DLS report rightly notes that reductions in government spending come at a cost. Because government spending is relatively labor intensive, budget cutbacks tend to reduce government employment, which in turn leads to private sector job losses as a result of lower overall demand in the economy. As a result, accounting for reduced corporate income tax collections solely through reductions in government spending results in net job losses for the foreseeable future and reduced disposable income for Maryland residents:

Scenario 2: Increase in State Sales Tax to Replace Foregone Revenues

In the second scenario, the decrease in the corporate income tax is offset by increases in the state sales tax. Increasing the state’s sales tax effectively raises consumer prices. While the DLS models indicate that this option has a less negative effect on employment and personal income than the previous scenario, they also find that it will result in increased economic migration as residents leave due to higher prices for goods subject to the sales tax:

It should also be noted that shifting more of the burden of state taxation to the sales tax would increase the inequality of Maryland’s tax system, especially when paired with a reduction in the corporate tax rate. Sales taxes, because they do not account for income, fall hardest on those least able to pay. Pairing such a shift with a massive giveaway to business would merely amplify the disparity between Maryland’s most and least fortunate.

Neither scenario indicates that reducing the corporate income tax would be a good idea for Maryland at this time. No matter what mix of spending reductions and tax increases policymakers choose to employ to offset lost revenue, reducing the corporate income tax shifts the cost to low and moderate income families who will see a reduction of jobs and public services as well as an increased tax burden.  So why would anyone think this is a good idea?

Update (11.13.13):

Survey results released by Gonzales Research and Marketing Strategies find that 57% of Maryland residents oppose reducing the corporate income tax. (h/t Maryland Reporter)

Support for Raising Minimum Wage Gains Momentum

Last week, both Governor O’Malley and President Obama expressed support for raising the minimum wage. In the coming legislative session, the Maryland General Assembly has the opportunity to act on these calls and increase the economic security and earning power of Maryland workers.

On Thursday, President Obama expressed support for raising the Federal minimum wage to $10.10 per hour via the Harkin-Miller bill. The current federal minimum wage is $7.25. The Harkin-Miller bill would raise the minimum wage in three incremental steps of 95 cents over two years, after which the minimum wage would be indexed to inflation. Indexing the minimum wage to inflation is an important policy measure that would allow it to keep up with the cost of living so that workers’ earnings do not erode when policy makers fail to adjust the minimum wage even as prices increase.

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Source: Economic Policy Institute  

While the President’s support for raising the minimum wage is a positive step, Maryland lawmakers should not wait for the federal government to act. These days that seems like a losing proposition. Instead they should take a leadership role and raise the minimum wage in Maryland independent of federal action. Nineteen states and the District of Columbia currently have minimum wages higher than the level set by the federal government. Maryland is not one of them. Nor is Maryland among the ranks of the ten states which currently index their minimum wage to inflation.

For his part, Governor O’Malley argued that raising the minimum wage is a way to “give dignity to every Maryland family that works hard and plays by the rules” and other state lawmakers and candidates for office have expressed support for raising the minimum wage as well. Further, recent polls suggest that the public favors doing so by a four-to-one margin.

In the coming legislative session, Maryland lawmakers should capitalize on this momentum and enact an increase in the minimum wage that will reduce inequality and support economic growth.