Immediate budget problem evaporating – serious challenges remain

Maryland’s budget deficit for fiscal 2014 is nearly gone. The legislature’s fiscal staff recently briefed the Spending Affordability Committee and presented new estimates. These incorporated revised estimates of state debt service requirements and casino revenues.

Source: Dep't of Legislative Services

The result is a projected shortfall of only $27 million. In the context of a total budget of $35 billion, that is essentially balanced.

Does that mean the Governor and legislature don’t have any budget work? Hardly. There are three big, big challenges.     

1.  The fiscal cliff. As we have shown, an impasse on the FEDERAL budget would have severe effects on Maryland’s economy and budget. The White House and Congress must achieve a responsible compromise that avoids precipitous cuts and middle-class tax increases, but that significantly reduces the federal deficit over time. Legislative staff recommended that the upcoming Maryland budget should leave a positive fund balance of $200 million as a buffer.
2. The structural deficit. Even though Maryland has virtually balanced its budget for the upcoming year, the state’s finances are not yet sustainable for the long haul. The projected budget for the upcoming year – fiscal 2014 - could be balanced without much effort because there’s a ¾-billion-dollar surplus to start the year. If we finance the budget by spending down that surplus, then revenues will continue to fall short of expenses after the balance is gone, and the state will be looking at budget shortfalls again in a year or two. So the Governor should propose ongoing revenue increases or spending reductions to bring the budget into long-term balance. One idea for raising revenues is an increase in the tax on cigarettes proposed by the Maryland Citizens’ Health Initiative. This would help balance the structural budget and reduce future health expenses by discouraging smoking.
3. The Transportation Trust Fund. Like most states, Maryland has a special, dedicated fund to pay for roads and other transportation projects: the transportation trust Fund. The gas tax, the transportation fund’s major revenue source has not increased since 1992. And the gas tax does not adjust to account for inflation or for fuel process. The fund is now running out, and without new revenues there will not be enough money for any new construction of roads or mass transit. Maybe not enough to cover operation and maintenance of what we have now. The 2013 legislature will need to consider increasing the gas tax for the first time in 20 years.