GBC’s Fry: Reason for deficit: recession or spending?

Don Fry Commentary on WYPR

What’s the ultimate cause of the Maryland government’s deficit? Is it the recession or is it that Maryland’s spending habits are out of kilter? That’s a point of contention between legislative leaders and those who criticize their plans to creatively plug budget holes until the recession ends when, presumably, state revenues will rebound.

House Speaker Michael Busch points to the “unforeseen” recession as the sole cause of Maryland’s deficit problems and blames an unregulated Wall Street for the recession.
Our state’s revenue and spending structure is sound, he says.

Others such as Senate Minority Leader Allan Kittleman contend that chronic deficits occur because the state habitually spends too much and that harmful long-term spending tendencies must be corrected to make the state fiscally sound in our post-recession future.

So what’s the bigger problem – the recession or excessive spending? State data suggest that the answer lies somewhere in between.

The recession clearly has been brutal on Maryland’s citizens. The state unemployment rate is 7.5 percent. Initial unemployment claims increased by double-digit percentages in all but one month last year. This has wreaked havoc on government revenue. Maryland’s general operating revenues are projected to be down 4.7 percent from this fiscal year, after decreasing 3 percent the year before.

On the spending side, the state’s leaders are cutting expenses, but they are filling more of the deficit gap with one-time windfalls and fund transfers.

What did the state’s spending look like before the recession? Between 2000 and 2007, General Fund spending increased an average of 6.5 percent annually, a full percentage point higher than the rate at which Marylanders’ personal income rose.

It’s reasonable to expect the state’s economy and revenue to bounce back after the recession. But is it healthy to expect revenue – and spending – to bounce back to pre-recession levels?

That’s a question that lawmakers must ask themselves – sooner or later.

For the Regional Business Report, this is Don Fry, President and CEO of the Greater Baltimore Committee, for 88.1 WYPR, your NPR news station.

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