ANNAPOLIS – Maryland Gov. Parris N. Glendening’s use of rainy day funds to close part of the state’s estimated $1 billion budget gap is an acceptable technique, say independent budget analysts, as long as budgets are structurally balanced.
But state budget analysts say the governor’s budget doesn’t achieve structural balance, leaving Maryland lawmakers to deal with the issue.
Structural balance means that continuing expenses are paid with ongoing, rather than one-time, revenues.
“Continually preserving a rainy day fund for future problems is tantamount to not having a rainy day fund at all,” said the Center on Budget and Policy Priorities in a Monday report.
Those rainy day funds could be used to overcome immediate budget shortfalls and buy time to make more studied program cuts or tax increases, said the center.
The center, which studies how government policies affect moderate to low- income individuals, said quick budget cuts often trim programs that see an increase in applicants during recessions. These types of cuts, combined with tax increases, hurt low-income individuals the most.
In addition, tax increases and program cuts tend to aggravate recessions, the center warned.
State rainy day money is tantamount to the money in the sock drawer. It provides ease of mind that there is money to fall back on and helps states get better loan rates because it demonstrates fiscal responsibility.
Glendening proposed using $249 million of Maryland’s rainy day fund to help balance the 2003 budget, leaving $500.2 million in the pot – about 5 percent of overall revenues.
“The governor has in his budget proposal tapped some of the rainy day funds, however he was very careful to maintain the 5 percent recommended by Wall Street to maintain the state’s AAA bond rating,” said Glendening spokeswoman Michelle Byrnie.
But use of rainy day funds and such recommendations have one caveat: “Using rainy day funds to compensate for structural budget deficits . . . is not good policy because it uses one-time money to fund an ongoing, rather than a cyclical, deficit,” the center said.
Maryland lawmakers are wrestling with that issue now.
“We don’t have a structurally balanced budget,” said Warren Deschenaux, director of the Office of Policy Analysis at Maryland’s Department of Legislative Services. He projected a nearly $1 billion difference between spending and revenue in the governor’s proposed 2003 budget and estimated revenues would have to increase 16 percent to cover the projected 2004 budget shortfall.
But Deschenaux said the General Assembly has a good record of management and said he was confident they would be able to reign in the governor’s budget proposal.
General Assembly Democrats have introduced bills to find new revenue sources while House Republicans have proposed establishing a commission to streamline government, but both have pledged to keep a promised 2 percent tax cut. Glendening’s budget rescinds the reduction, the last phase of a 10 percent tax trim.
One bill targets cushioning cash by decoupling the state and federal death taxes, decreasing lottery agent commissions, siphoning money away from the transportation trust fund, decreasing the sales tax rebate that fuel distributors receive, and decreasing the amount of bonds that can be issued to pay for transportation facilities. The bill was jointly filed by Sen. Barbara Hoffman, D-Baltimore, the powerful chairwoman of the Senate budget committee; Delegate Sheila Hixson, D-Montgomery, and House Speaker Casper R. Taylor Jr., D- Allegany.
The Center on Budget and Policy Priorities estimated the state could save between $250 million to $350 million from 2003 to 2007 as a result.
Taylor also has filed a bill with several other Democrats to create a commission to study and recommend possible new revenue sources.
“Personally, I think we need to look at where structural cuts could come from,” said Sen. Lowell Stoltzfus, R-Somerset.
“I don’t know if we’re doing things as efficiently as we should,” said House Minority Leader Alfred W. Redmer Jr., R-Baltimore County, sponsor of the government streamlining commission bill.