Dealing with facts in Senate District 38 (first of four parts)

You’ve seen some of the flyers that have come to my mailbox: trust me, more have arrived and there’s probably more to come. But between the claims and counterclaims there’s one thing that is real – and it’s the very reason I created the monoblogue Accountability Project (mAP) eleven years ago.

Over the last four years, both Mary Beth Carozza and Jim Mathias have had the opportunity to vote on most of the 100 bills I selected to be part of one of the four editions of the mAP from 2015 to 2018. (A handful were committee votes, which seldom overlap – but did in one case in 2015.) So over the next few days I’m going to illustrate just what the differences were, beginning in this installment with the 2015 session of the Maryland General Assembly – their first as a team.

In 2015 Mary Beth Carozza received a score of 56 on the mAP by being credited with 14 correct votes but having 11 incorrect ones. Meanwhile in the Senate Jim Mathias reached his term high score of 40 on the mAP by making 10 correct votes and 15 incorrect. (Jim’s all-time high was when he scored a 53.12 rating in the 2007 Special Session, done in the days before I standardized the number of votes. That session was based on 15 total votes in the House of Delegates, where Jim served at the time.) Three of Jim’s ten correct votes, though, were at the committee level, and two were not common votes. They both voted against HB1094, Mary Beth on the House floor and Jim as part of the Senate Finance Committee.

What I’m going to drill down into are the featured floor votes where they parted company – in the case of the 2015 legislative session there are a total of 10 such votes out of the 25 I used for the mAP. Of those ten, there were eight which were correctly voted upon by Mary Beth Carozza but not Jim Mathias, and two that were voted on correctly by Mathias and not Carozza. Those two in Jim’s favor were both in the realm of civil liberties: one (SB651) was a provision to allow expungement of a crime if it’s no longer on the books (tailored for those convicted of possession of small amounts of marijuana, which was on its way to becoming a civil offense as opposed to criminal) and the other (HB360) a reform of civil forfeiture laws. Yet while Jim was good on those two, he still opted to maintain the possession of small amounts of marijuana as a criminal offense rather than converting it to a civil offense (HB105). Jim was one of just three Senators saying no, even as the law did not pass in 2015.

Jim also voted badly on a number of measures that should have been left out of state law. Since health care has been a hot topic in this campaign, it should be noted that one of them (HB838/SB416) raised insurance rates significantly in order to allow a handful of same-sex couples coverage for in vitro fertilization.

Public records were a key topic in that session as well. Jim supported a measure which would allow those who undergo treatment for gender changes to also change their birth certificate without it being noted that this wasn’t an original document (HB862/SB743), but more importantly for most he also supported a $5.2 million annual fee increase for the public through court filing fees rather than allowing it to be charged to the attorneys (HB54.)

Another tax Mathias supported, even over the veto of the governor he swears he’s working with, was the so-called “travel tax” that allowed the state to collect full-rate sales tax on rooms where the rates were discounted (SB190.) And that’s not all the anti-business law Jim supported: no longer could employers and employees agree to waive certain types of paid leave (HB345) – of course, the state was kept exempt.

But perhaps the most misunderstood differences were in HB70 and HB72. HB70 was that year’s state budget, and it’s been the subject of one Mathias mailing already. So to recap: Mary Beth was fine with that budget until it was amended by the Senate and backroom dealings.

It appears the same thing happened with HB72, which was that year’s BRFA act. In order to make things work fiscally and keep a balanced budget as required by law, sometimes previous laws need to be changed, and the favored vehicle for that is generally called the Budget Reconciliation and Financing Act, or BRFA. In that session Carozza voted for the original House version but once the Senate got hold of it she didn’t like the changes and voted no. Meanwhile, her Senate opponent was just fine with doing as much as possible to thwart Governor Hogan’s intentions.

And to think: this is only the first of four years. Here is the second.

Scraping the bottom

Earlier this week the Tax Foundation released its annual State Business Tax Climate Index. Despite Governor Hogan’s insistence on improving business climate and efforts to adopt some of the Augustine Commission’s reforms, Maryland once again has the dubious distinction of being a bottom-10 state.

Yes, that sickening orange color tags us as a state to avoid insofar as business taxes are concerned. In truth, we’ve only dropped one spot from the 2015 index so while we could have made a few minor improvements other states are improving at a faster pace. (Maryland seems to tread water – over the last four years we have oscillated between #40 and #41.) Moreover, we still lag behind all of our neighbors with Delaware again leading the region. The First State maintained its #14 ranking.

There is one important caveat to Maryland’s decline which could push them out of the bottom 10 next year. Late last month Governor Hogan announced a significant cut in the unemployment insurance tax, which is one of the factors (albeit the least-weighted) the Tax Foundation uses to determine its rank order. But other states are trying to push the envelope more quickly by reducing corporate and individual tax rates, something Maryland has talked about but not acted upon. (The Tax Foundation’s weighting process is explained on page 16 of their full report.)

While reducing regulations doesn’t always require legislative approval, the tax nut is a harder one to crack. The requirement to balance the budget means that revenue no longer extracted from corporations and small businesses alike can’t be used for profligate spending. At a time when government getting an increase that’s less than expected brings screams about draconian cuts from the left side of the aisle, heads truly explode when less real money is allocated. Even if you get 97 cents when you used to get a dollar, liberals act as if you just shot their unicorn with a scary-looking AR-15.

There’s a reason I bring up 97 cents as a particular figure. According to the state’s FY2016 budget, the corporate income tax accounts for 3% of the revenue; thus, eliminating it entirely would mean a corresponding budget cut. (We’ll leave aside the obvious competitive benefit to the state, which would eventually attract more business and increase revenue via other means such as income and sales taxes.) While it’s true that having a poor corporate tax ranking doesn’t completely eliminate the good – Delaware’s #50 ranking in corporate taxes only drags its overall rank to #14 – eliminating the tax would make it plain that Maryland is indeed “open for business.”

Eliminating the tax would also eliminate what’s become an annual debate about combined reporting. Proponents of its adoption, mainly Democrats, claim large businesses are not paying their fair share because they use the accounting trick of claiming their income arises from low-tax states. They may make actual profit in Maryland but don’t report it because they have operations in other. more tax-friendly states. The most recent iteration of the idea came last year, with the tradeoff that would have eliminated filing fees for small (less than 10 employee) businesses. In that respect it was a money-loser for the state; however, the research showed in better economic times the effect would be beneficial to state coffers.

Interestingly, Salisbury has a new mayor that epitomizes the opposite end of the chicken-and-egg approach: last week in the Salisbury Independent, Jake Day was quoted as noting:

“Economic development isn’t what it used to be,” he said. “It includes more activities. It’s now about culture. About quality of life issues. The arts and people. Parks, bike trails, bike lanes. And if you don’t get those right, don’t even talk about workforce development and industry and business development efforts, because you have to have those things to attract anyone.”

This portion of Delmarva boasts a lot of natural beauty along its rivers and coastlines, a well-regarded university, and a proportionate share of arts and culture. Perhaps the traditional bricks-and-mortar manufacturing or legacy service industries won’t come to Salisbury, but it’s been obvious over the last ten years that the beauty, academics, and culture isn’t exactly making this a hotbed of economic activity either. There needs to be a more balanced approach to development because it takes a fair amount of money to create and maintain parks, bike trails, and bike lanes – particularly if the money is granted from the state as it often is. We may be competitors to certain other urban areas around the state, but development somewhere else in the state or even another state, depending on the grant source, is paying the lion’s share for the bike lanes to be installed here. (In some cases, local gifts have helped.) Funding will also be required to maintain parks and develop new ones like Pirate’s Wharf along the Wicomico River.

There are thousands who have moved here over the decades as adults, and for the most part they came here for one of two reasons: they came to school or they came for a job. And if they came for school, there’s no guarantee they will stay if jobs or entrepreneurial opportunities aren’t available.

Simply put, Maryland has a long way to go in overcoming the poor reputation they have for growing and attracting businesses. It’s a lot easier for those on the Western Shore to prosper when there’s a ready-made source of confiscated wealth in close proximity. (If all those people had to find honest work Maryland would be just like West Virginia, with high unemployment. Because it’s well away from that honey pot of confiscated largess, the lower Eastern Shore already is in that same high-joblessness boat.)

I learned the other day that the Augustine Commission determined 1/4 of Maryland’s GDP comes from the federal government. If we can rightsize the federal government over the coming decades, Maryland will be negatively affected in what would be of overall benefit to the nation. It’s time to wean our state off the opioid of living off the federal employees and make strides in diversifying our economy. For that reason, making our state more business-friendly simply has to occur.

The state budget shell game

March 20, 2015 · Posted in Cathy Keim, Delmarva items, Maryland Politics, Politics, State of Conservatism · Comments Off on The state budget shell game 

By Cathy Keim

Governor Hogan was elected because voters had had enough of the O’Malley spending spree. Before Hogan was sworn in, the budget shortfall of $1.2 billion over the next eighteen months was already public knowledge. Everybody knew that cuts were coming; only the particulars were uncertain.

Because Maryland has a strong executive branch, the General Assembly can only cut the budget or move money around. It cannot increase spending. The House is squandering many hours debating how to find the money to undo cuts that Hogan made, particularly to schools and the state employees’ COLAs.

Last July, Martin O’Malley gave the state employees a cost of living increase of 2% despite knowing that the budget was not in good shape. I would like to point out that employees in the private sector are not seeing cost of living increases. Why the state employees deserve a taxpayer-funded pay increase when the taxpayers are not getting their salaries increased is hard to justify. Governor Hogan rescinded that increase in his budget because the state did not have the funds to support it.

He also declined to fund the schools to the level they desired. Yet his budget gave a 1.3% increase to education over last year’s budget, so it is hard to make the case that he cut the budget drastically. One might have expected a 0% increase when we are facing a $1.2 billion deficit in the upcoming months. That sort of deficit on a smaller scale is what causes taxpayers to choose ground beef over steak. But then we have to actually balance our checkbooks rather than use creative accounting to get the job done.

Let’s take a moment for some background information. Despite our budget shortfall, Moody’s just gave Maryland an AAA rating once again.

Why is this AAA Bond rating so important? “Retention of the AAA ratings affirms the strength and stability of Maryland bonds during difficult and volatile times,” said state Treasurer Nancy Kopp. “This achievement allows us to continue to invest in our communities’ schools, libraries, and hospitals while saving taxpayers millions of dollars thanks to the lower interest rates that follow from these ratings.” (Emphasis mine.)

Maryland is one of only 10 states that has the AAA bond rating from all three firms that assign ratings, Moody’s Investors, Standard and Poor’s, and Fitch Ratings. Moody’s included the following warning when assigning the AAA rating:

WHAT COULD MAKE THE RATING GO DOWN

  • Economic and financial deterioration that results in deficits and continued draw downs of reserves without a plan for near-term replenishment
  • Failure to adhere to the state’s tradition of conservative fiscal management, including failure to take actions to reverse its negative fund balance
  • A state economy that does not rebound in tandem with the rest of the country
  • Failure to adhere to plans to address low pension funded ratios (emphasis mine)
  • Downgrade of the US government

Why does Maryland have low pension funded ratios? Because all that pension money just waiting there for the retired employees is too tempting for the politicians. They have dipped into the fund before. In 2011 as a corrective measure, Martin O’Malley reached an agreement with state employees that if they would increase their contributions to the retirement fund from 2% to 7%, then the state would put in $300 million annually to fund the pensions at an 80% level by 2023. That would still leave the pension fund $20 billion short, but that would be an improvement. The state employees have been putting in their extra 5%, but the state has not been putting in the entire $300 million. They find other ways to spend that money.

Now we are finished with the history and back to the present. The House debated for hours yesterday whether to fund the pension plan with the full $300 million or to take a portion of the money to continue the 2% increase in state employee’s wages and increase school funding. As I write, it is uncertain how the issue will be determined and whatever the House decides will still have to be reconciled with what the Senate produces.

Politicians seem to prefer to pay their supporters now and to let the future take care of itself since they will probably not still be in office when that bill comes due. It is a pleasing shell game. The politicians appropriate raises and perks for their constituents who then pay union dues, and then the unions donate money to the politicians –  lather, rinse, repeat.

According to the Washington Post, those public servants/union members might want to take note that:

In an effort to block relatively modest budget cuts proposed by Mr. Hogan, mainly to schools and public employees’ wages, Democratic lawmakers in Annapolis are pushing a plan to revamp the formula for scheduled contributions. According to Comptroller Peter Franchot, one of the few prominent Democrats who opposes the scheme, it would shift $2 billion into the general budget over the next decade, then cost the state $4.5 billion in the following dozen years — meaning Maryland would face a net $2.5 billion in additional costs over time in order to keep its pension promises.

Additionally, even if the state did put all the funds into the pension plan that they promised, the pension fund would still be underfunded by $20 billion in 2023. Since over 382,000 current and former employees are covered in this plan, it would seem to be a rather important item for the state to fully fund the pension program.

So our esteemed politicians in Annapolis are willing to risk our credit rating which could lead to increased interest payments when borrowing funds, underfund the pension program that thousands depend on, and incur $2.5 billion in additional costs to finally keep its pension promises, just so that they can override Governor Hogan’s budget.

While that may be a winning hand for the politicians, their constituents that get the 2% cost of living increase, and the unions, it is not a winner for the taxpayers.

An example of what budget hawks have to deal with

This came in the e-mail today and showed why budget cutting in Maryland is going to be hard – everyone thinks someone else’s budget should be cut but not theirs. So the local arts community will spend the money to feed those who carpool in the hopes of descending on Annapolis to get support.

February 10, 2015 is MD Arts Advocacy Day at the Capital. This important and productive day at Annapolis needs your leadership voice and action.

HOW ARE WE SUCCESSFUL? The large number of attendees with their passionate plea! Every year SWAC arranges a carpool to take as many of us there as possible. It’s more important THAN EVER for a large attendance as we have a brand new Governor and Wicomico County Delegate to influence. Speakers presentation & individual sessions with delegates from our area are on the agenda and SWAC is urgently asking for your participation as a strong showing support from Wicomico County.

WHAT? This is where arts advocates from all over the state gather to speak directly to our Senators, Delegates, and Governor about the importance of the arts. We must reach our elected officials from the entire state with the important mission of funding for the art.

WHY? Exactly because of the number of attendees & their strong voice, great achievement has been made in the past resulting with MD being one of the top three states in the nation for the highest arts funding in the Governors budget of 16 million dollars earmarked for the arts! (Emphasis in original.)

Granted, $16 million is just a drop in the bucket for a $40 billion budget, but cuts have to be made somewhere. Perhaps the arts will be trimmed to $14 million this time as the state faces a massive shortfall for the next fiscal year.

Yet there will be an entire day of artisans and non-profits from around the state beseeching the state to keep their revenue stream going. It’s interesting to me that they stressed the new governor and Delegate (presumably speaking about Carl Anderton, whose district lies entirely in Wicomico County) – it would be my guess that a large percentage of those who would make the trip voted the other way when it came to that portion of the ballot.

In the case of the Salisbury Wicomico Arts Council (or SWAC) who put out this missive, it’s certain they will stress the influence of the arts in trying to revitalize Salisbury’s downtown, pointing to the success of 3rd Friday and the hopes that the new Headquarters Live will be a hit. But each of these events has to sink or swim on its own merits. It took a few years for 3rd Friday to gain momentum, but the window for success may be a little bit shorter for Headquarters Live.

It may only be about .04% of the state budget, but my suspicion is that the arts will have their share of cuts, too. Yet the dirty little secret is that simply level-funding the budget would take care of most of the problem, so if the arts can live with what they have for a year or two the state may be able to grow its economy out of the problem. My advice to SWAC and the others in the arts community: make do with what you have.

A look ahead: 2015 in Maryland

While many of the fiscal issues that dogged the state in 2014 are still around – and have continued to worsen with each revelation of another revenue shortfall – the personnel in place to address the problem has undergone significant changes thanks to a wave election which pulled Maryland into its tide.

At this time in 2013 when I wrote the look at 2014, the election seemed to be the molehill Anthony Brown thought it would be as the Maryland GOP was divided and despondent. But Larry Hogan’s Change Maryland movement was enough to overcome the built-in advantage in Democrat voter registration; meanwhile, Brown ran a highly uninspiring campaign that led to the lowest Democrat turnout on record. The drag from the top of the ticket allowed Republicans to pick up seven House seats and two Senate seats despite the gerrymandered redistricting done by Democrats after the 2010 elections.

November was the easy part, though – now Hogan has to govern. Job one will be finding $420 million to squeeze from this year’s budget, while the gap for next year is an estimated $750 million. While that number is daunting, it should be pointed out that the FY2015 state budget was $1.886 billion higher than the FY2014 version. That’s a 5.1% increase, so being $420 million short equates to a 1.07% cut. Simply holding the line on the budget for FY2016 and keeping it under $40 billion (in essence, level funding) should cover a lot of the problem. In fact, holding the budget to $40 billion rather than another 5.1% increase to match last year’s would net a difference of $1.224 billion – more than enough to cover the shortfall.

I realize it’s not as easy as I make it sound, but the budget is in Larry Hogan’s hands. The other key is a bill normally introduced immediately after the operating and capital budgets each year called the Budget Reconciliation and Financing Act, or BRFA. This is where the mandated spending that makes up over 80 percent of the budget is tweaked, and this is the bill for which Larry Hogan will have to sharpen his pencil and will want to keep a close eye on. Generally it is introduced by the administration’s request in the body which considers the other budget items. Although a version goes to both the House and Senate, by tradition budget consideration alternates yearly and 2015 will be the House’s turn.

And starting it in the House is important because a significant number of members are freshman legislators, many of whom were elected by receiving the message that voters were looking for change and fiscal responsibility. Over half of the Republicans in the House are newly-elected, with at least one appointee as well to replace Delegate Kelly Schulz, who was tapped to lead the Department of Labor, Licensing, and Regulation. This process will be a sidebar story as two current members of the General Assembly have already been chosen for positions in the new administration (Schulz and Senator Joe Getty.)

On a local level, the entirety of Wicomico County will be, for the first time in memory, represented in the House by a delegation entirely made up by freshmen. A combined 83 years of experience among six members was wiped out by a combination of redistricting, retirements, promotions, and electoral losses, leaving the county with five freshman representatives – Christopher Adams, Carl Anderton, Jr., Mary Beth Carozza, Johnny Mautz, and Sheree Sample-Hughes all begin their tenures next week. It’s perhaps a situation unique to the state; fortunately, the combined legislative experience of the county’s Senators is 28 years (20 for Addie Eckardt in the House and 4 years apiece for Jim Mathias in the House and Senate.)

Yet the change in leadership in the state could make things easier on the counties as well, provided Hogan makes the right departmental selections. As I pointed out yesterday regarding Wicomico County, a change at the Department of Planning could make county-level tier maps become more suited for local needs rather than state mandates. (Certainly counties with approved maps should consider tweaking them to address perceived inequities.) Hogan has also promised steps to allow fracking in western Maryland, to consider a plan to clean the Bay by addressing the sediment trapped behind the Conowingo Dam, and will maintain strident opposition to phosphorus regulations which would affect poultry production on the Eastern Shore. All these endeavors can be assisted with prudent selections at the departments of Environment and Agriculture.

All through the state government there’s an exciting potential for reform – if the right choices are made. Hogan’s early picks have been of a bipartisan nature, which may frustrate GOP activists who saw the same practice help to undermine the Ehrlich administration, but could be argued to be necessary with the political reality that a lot of Democrat votes went to electing Hogan. (Statewide Democrats down the ticket, on the other hand, were selected by comfortable margins.) That also becomes the price to pay for having a majority-Democrat General Assembly.

Something else to watch in Maryland will be how much more Second Amendment erosion takes place under newly-elected Attorney General Brian Frosh. A gun grabber in the Maryland Senate, Frosh now takes a bigger role and it will be up to Hogan to prove his Second Amendment bona fides by championing the eventual repeal or overturn in court of the ill-considered Firearm Safety Act of 2013 – although the law may see its day in federal court first.

Another probable line of demarcation will be how to deal with the certainty of more illegal aliens thanks to Barack Obama’s policies of amnesty. With Maryland’s reputation as a sanctuary state, anything short of a localized get-tough approach will be a further drain on the budget and another headache for Hogan.

All this and I haven’t even touched on economic development or educational reform, which will also be items to watch in 2015 but currently have far too many known and unknown unknowns, to borrow a phrase. On the latter, Hogan has made it known he’ll work to strengthen charter schools but true reform is probably some years away.

The story of 2015 in Maryland will be the story of how Larry Hogan leads after he takes the oath of office January 21. By then we’ll have some idea of what the priorities of the General Assembly will be as they’ll have already put a week of session under their belts and the hearing process should be underway on the highest-priority items. Success may be as simple as plugging the financial hole by tightening the state’s fiscal belt and the faster that happens, the more of the conservative agenda could be debated.

Another billion in the pipeline

Today the state’s Spending Affordability Committee allowed Maryland to increase its debt load another $75 million and to grow the state’s budget by 4 percent, both over Republican objections. This comes from the House Republican Caucus Facebook page, a note which will likely be prominent in an upcoming release:

Today Republican leaders in the House & Senate voted unanimously AGAINST supporting dramatic increases in state spending & debt.

Ultimately the Spending Affordability Committee passed a resolution to support allowing state debt to increase by another $75 million and spending in the state budget to increase by 4%. “After nearly 80 increases in taxes, tolls, and fees over the last seven years it is irresponsible to lay the foundations for yet another tax increase”, said Delegate Addie Eckardt of the Appropriations Committee. “Voting to expand our debt is basically voting to increase Maryland’s property tax; maybe not today, but certainly in the not-so-distant future.”

With structural deficits widening and lackluster growth in Maryland’s economy, Republicans also supported a measure for zero growth in the State’s operating budget.

While the state struggles with the aforementioned structural deficit – predicted to be nearly a half-billion dollars despite gleeful assurances we had eliminated it, both after the 2007 special session and after another series of tax hikes last year – the decision by the Spending Affordability Committee means that spending can increase as much as $1.5 billion next year, based on last year’s $37.3 billion state budget. Needless to say, the slow growth in the state’s economy will likely force the O’Malley/Brown administration and Democrats in the General Assembly to conjure up new sources of revenue.

It’s also likely the Republicans in the General Assembly will put together their own budget alternative which holds the line on spending, only to be ignored as they always are. A 2% across-the-board cut in this year’s budget would have saved Maryland taxpyers around $750 million. With that savings, for example, the sales tax could have reverted back to 5%, as it brings in $4.3 billion annually.

Eckardt, who represents a portion of Wicomico County as well as parts of Caroline, Dorchester, and Talbot counties in the General Assembly, isn’t the only local member of the SAC. Democrat Norm Conway is also an ex officio member based on his being Chair of the Appropriations Committee, and I’m told all the Democrats voted for this budget busting.

While the budget is created by Governor Martin O’Malley, it’s considered one of the most executive-heavy budgets in the country because of the lack of power the General Assembly has in changing it. Thus the emphasis on winning back the governor’s seat next year.

Since Martin O’Malley introduced his first budget one day after taking office in 2007 (the FY2008 budget) the FY2015 budget he’ll introduce early next year will be his last. Whether a dose of sanity is present for the FY2016 budget will be up to voters next November.

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