One criticism I’ve had about Maryland’s budget system is its lack of flexibility. There are a lot of money pots out there besides the General Fund, and Martin O’Malley seems to want to take money out of every one of them to balance his FY2011 budget. This from Americans for Prosperity:
As you know, the Senate Budget & Taxation Committee will be holding a public hearing this Wednesday on SB141. This bill, the Budget Reconciliation and Financing Act, will transfer nearly $1 BILLION from the state’s 382 special funds to cover Gov. O’Malley’s budget deficit.
One of the funds Gov. O’Malley is proposing to raid is the Transportation Trust Fund (TTF). Started in 1971, the TTF is the account used to pay for road, bridge and infrastructure repairs. It is primarily funded by the gas tax – each time you fill up at the pump, you are contributing to road repair…or so you thought. This year, O’Malley has decided to take $125 million of those taxes and use it to paper over his $2 billion deficit.
Stealing from the Transportation Trust Fund becomes even more problematic next year, because the TTF is already under-funded. When the fund runs dry you can bet that the liberal politicians will want to raise taxes. Senate President Mike Miller has been pushing the idea of a gas tax hike for the last few years.
Another fund that O’Malley has decided to attack is the Injured Workers Insurance Fund (IWIF). IWIF is a low-premium insurer for many businesses who provide workers compensation to employees. It is financed by the premiums each policy holder pays on a quarterly basis.
Not only is the legality of the state confiscating $26 million from a private insurance company in question, but this move will hurt small businesses. Again, when the fund is drained, the premium rates will rise to replace the stolen revenue.
Small businesses are the engine of our state economy – they employ nearly two-thirds of the workforce in Maryland. If we expect an economic recovery with job growth, the government cannot continue to put undue burdens on businesses. The last thing small businesses need right now is to be paying higher insurance premiums or gas taxes.
382 special funds in the Maryland budget? WTF? Anyway, the Maryland Senate Republican Caucus also weighed in:
Entering the 2010 legislative session, there were few remaining reserve funds left to tap. They have all been depleted. O’Malley has exhausted all available reserves except for the Rainy Day Fund. Tapping the Rainy Day could jeopardize the coveted Triple A bond rating which would cause great embarrassment to the administration.
So O’Malley turned to the Injured Workers Insurance Fund to tap a reserve of $20 million. Problem is – the IWIF reserve is not state money. It is not taxpayer dollars. Instead it is overpayments of insurance premiums from small businesses throughout the state.
Then is it legal? A 1968 opinion of the Attorney General’s Office states that reserve funds of the State Accident Fund (IWIF’s predecessor) are not state funds accessible for general purposes. Established as a nonprofit insurance company, IWIF is a quasi-public agency and state use of insurance overpayments as a fund swap would be unconstitutional.
To cover their tracks, the O’Malley Administration has now introduced bills (Senate Bill 507 and House Bill 1008) that would give the Governor authority to transfer the $20 million this year just as long as it’s never done again. Go figure!
So, not only do we have the BRFA bill but now another bill in order to fix things for this year. Sheesh.
The larger question is what we’ll need to do next year to fill in all of these pots. With the federal portion of the state budget now eclipsing 60 percent, one would think that Barack Obama may bail out his cohort if he’s reelected this November. But with these funds come strings and that lack of flexibility will probably preclude O’Malley being able to make up the shortfalls with federal money next year.
Three years ago, Governor O’Malley called a Special Session to address this issue and its result was a number of tax increases which were supposed to correct the state’s structural deficit. However, the increase in the sales tax, cigarette tax, and a (since-repealed) “tech tax” on computer services were counterbalanced by a huge increase on spending which attempted to bring health insurance to thousands more Marylanders.
To the surprise of everyone – except those with a little bit of economic common sense – these new levies didn’t bring in as much money as the so-called experts predicted. In all that’s not so bad, but other previous taxes like property and real estate transfer taxes also declined. Making matters worse (but certainly not unexpected) is the outflow of capital due to the “millionaire’s tax” – again, from the Senate GOP Caucus:
According to an Associated Press article posted at Examiner.com, Montgomery County has experienced a 27% decline in tax returns from high income earners. This decline has contributed to a loss of $4.6 billion in taxable income: “County Executive Isiah Leggett says some wealthy residents who own homes in other states are establishing residency elsewhere. Officials believe the state’s millionaire tax is a factor.”
Unlike the perception progressives attempt to create about TEA Partiers as people who want to get government services without paying for them (a description more apt for Democrat voters,) most don’t mind paying a fair share in taxes. But what we want in return are efficient services which perform necessary functions, and too often we find that government at all levels fails to deliver on one or both sides of the equation.
If Martin O’Malley truly decided to live within his means, he would gain the intestinal fortitude to make cuts such as the insurance program he started. Obviously it’s a decision which affects a large number of people, but so would increasing taxes and fees. Raising the gas tax, for example, would disproportionately affect poor and middle-class Free Staters and rural residents like those on the Eastern Shore would pay more of a toll than city residents along the I-95 corridor.
One issue sure to come up in this year’s campaign will be fiscal accountability, and while Bob Ehrlich wasn’t the poster child for frugality the state was in much better financial shape when he left office than the potential mess he inherits should he be re-elected for a second, non-consecutive term.
Perhaps a solution would be to bring in some solid fiscal conservatives for the General Assembly in with Ehrlich, hopefully to keep his free-spending tendencies in check. Mark my words, if Martin O’Malley is reelected 2011 will be a rerun of 2007 – a session devoted to raising taxes and killing off whatever recovery the state is scratching out by then.