Marta Mossburg: Budget-busting choices haunt Maryland's fiscal health

|

One-time budget cuts may help Montgomery County and the state make budget this year. But their problems are much bigger than one budget and require structural and cultural changes in state and local government to prevent repeat problems in coming years.

As The Examiner's own Alan Suderman reported last week, Montgomery County has been on a spending spree. He found that county schools increased staff by 30 percent as enrollment rose 7 percent over the past 10 years and that county employment rose 28 percent from 1997 to 2007, almost twice the rate of population growth during that time.

He also noted that salaries more than doubled for police and firefighters from 1999 to 2009 and nearly doubled for other employees.

All these choices mean the county faces a half-billion dollar deficit for the second year going -- and employees who view raises as a right disconnected from economic conditions.

A similar tale can be told at the state level. Spending on entitlements, like health care for state employees and post-retirement benefits has skyrocketed at a time of falling state tax revenue.

Health insurance spending will be about $870 million in 2010, 17 percent higher than in 2009. And teachers' retirement spending will rise 22 percent from the previous year to a projected $760 million according to "The 90 Day Report," an analysis of the most recent legislative session published by the Department of Legislative Services.

That spending is part of the reason overall entitlement spending has risen to almost 21 percent of the budget in 2010 from about 16 percent in 2001.

Another factor contributing to Maryland's $2 billion budget hole next year includes the number of state employees and their generous compensation. According to the 2008 Maryland Public Policy Institute report, "Government Pay: An analysis of Maryland's private versus public sector employment and compensation," the number of state government workers to private sector workers is higher than the national average.

And those state employees have been making more than Marylanders in the private sector since 1981, with the ratio of their pay to those in the private sector exceeding the national average. They also garner much more generous benefits than the state's private sector workers on an absolute level and relative to their peers in other states.

Authors J. Scott Moody and Wendy P. Warcholik estimate that, "In 2007, adjusting the state employment ratio to the national average would have saved taxpayers $195.8 million whereas adjusting the state compensation ratio to the national average would have saved taxpayers an additional $451.4 million."

As the authors wrote, the money saved, "could have been used to significantly reduce taxes -- or to offset the recent $1.5 billion state tax hike. For example, in 2006 (the latest year of available tax data), Maryland's tax burden could have been reduced by 3.6 percent to 5.85 percent of personal income from 6.07 percent of personal income."

Those who say high taxes have not hurt the state point to the fact that Maryland has the highest per capita household income at $70,545.

But other factors show the state failing to thrive. According to Census Bureau data, more people are moving out of Maryland than coming to the state, similar to other high-tax states like New York and California.

And Comptroller Peter Franchot's office recently released a report showing that 30 percent fewer millionaires -- the ones who invest and create jobs -- filed taxes in Maryland last year than the year before. He offered no explanation for the data, but it shows a higher percentage may have moved, died or failed to file taxes than in other years.

Maryland's performance is in sharp contrast to Virginia -- an archcompetitor of Maryland for federal contracts -- which is gaining residents through migration and offers significantly lower taxes.

The choice is clear. If Maryland wants to continue down the path of losing people and wealth to other states, it will maintain the generous pay and benefit packages to government employees that will run up the state deficit. If it wants to compete against surrounding states, it will cut them.

The question is whether the religious zeal with which so many state legislators favor big government can be replaced with an equally passionate desire to follow the consequences of their policies and pursue Maryland's long-term growth.

Examiner Columnist Marta Mossburg is a senior fellow at the Maryland Public Policy Institute and lives in Baltimore. You can e-mail her at mmossburg@mdpolicy.org.

View article comments Leave a comment