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Chairman's Message

Maryland’s “Unaffordable Spending Committee”

Posted: May 7, 2012 at 11:37 pm   /   by   /   comments (0)

Maryland’s budget would be two-thirds its current size if only lawmakers followed the same spending limit guidelines that 28 other states use, rather than following the recommendations of the state’s misnamed “Spending Affordability Committee.”  This is a conclusion of a new report by economist Eileen Norcross and Benjamin J. Vanmetre.   Their study, The Appearance of Fiscal Prudence: Maryland’s Spending Affordability Committee, was published in the Maryland Public Policy Institute’s Maryland Journal.  Norcross is a researcher with the State and Local Policy Project at George Mason University’s Mercatus Center.[1]

A better name might be the “Unaffordable Spending Committee.”

The year was 1978.  In California, Proposition 13 amended California’s constitution and imposed a limit on property taxes while also requiring a two-thirds majority vote for all changes in the state’s statute that would result in a tax increase.  Maryland Republican gubernatorial candidate Louise Gore proposed limiting spending changes to the yearly percentage increase in total personal income.  Incumbent Governor Blair Lee III argued that increases in the State budget should be limited to set percentage of total personal income.  Neither candidate was successful.

After a fashion, Governor Harry Hughes took up their ideas. Maryland’s Spending Affordability Committee was created, composed of the Senate majority and minority leaders, the chairmen of the fiscal committees, a number of additional appointed members and a citizen advisory committee.

Each December the Affordability Committee drafts report recommending a level of state spending based the state’s current economic and fiscal conditions.  Based on the Committee’s analysis and briefings from the Department of Legislative Services, the Committee determines a rate of growth in state spending that is deemed “affordable.”

However in practice, according to the report: “[B]oth the design and implementation of Affordability Committee has had the reverse effect.  Maryland has experienced close to a decade of structural deficits, with the process of determining a spending limit itself subject to manipulation over the period. On average Maryland’s budget grew by 4.5% a year in real terms between 1994 and 2007. The Committee’s recommendations are formulated subjectively, and recommended spending levels are justified according to a shifting set of economic, fiscal, and policy criteria.”

Spending in Maryland
Fiscal Year State Budget
1985 $6.9 billion
1990 $11.2 billion
1995 $13.7 billion
2000 $17.9 billion
2005 $24.9 billion
2006 $28.0 billion
2007 $32.1 billion
2008 $30.0 billion
2009 $31.2 billion
2010 $32.3 billion
2011 $32.7 billion
2012 $34.9 billion

Over the years the Affordability Committee has changed methodologies to justify increased state spending.  For example, when personal income growth lagged in a single year, it used a higher rate based on a multiple year average.  Another trick has been to manipulate the portion of budget subject to the review in order to allow state spending to grow at a faster rate, such as by not counting spending with borrowed funds.   Unfunded liabilities, such as pension contributions for teachers and State employees’ health benefits for State retirees are also excluded in determining the rate of spending growth.  And when tax receipts were not likely cover the Committee’s proposed spending increases, the Affordability Committee simply recommended the state consider generating additional revenue with higher taxes.

Four years ago, former Ehrlich Budget Secretary Cecilia Januszkiewicz reached a similar conclusion about abandoning the Spending Affordability Committee in a report for the Free State Foundation: Structural Solutions for Maryland’s Structural Deficit:Pathways to Reform.[2]

Januszkiewicz suggested that state expenditures instead should be limited to estimated state revenues, rather than relying on the convoluted affordability process.  She further noted that limiting State spending to estimated revenues is already was the standard established in the Maryland Constitution.

In 1974, Maryland voters approved a constitutional amendment that provides: “The Budget and the Budget Bill as submitted by the Governor to the General Assembly shall have a figure for the total of all proposed appropriations and a figure for the total of all estimated revenues available to pay the appropriations, and the figure for total proposed appropriations shall not exceed the figure for total estimated revenues. Neither the Governor in submitting an amendment or supplement to the Budget Bill nor the General Assembly in amending the Budget Bill shall thereby cause the figure for total proposed appropriations to exceed the figure for total estimated revenues, including any revisions, and in the Budget Bill as enacted the figure for total estimated revenues always shall be equal to or exceed the figure for total appropriations.”

As their alternative, the more recent Norcross and Vanmetre report recommends using a strict mathematical rule to limit spending based on the sum of the increase in population and inflation.  If Maryland had instituted a spending rule that limited annual increases in spending to the sum of inflation plus population growth during the same period as the Affordability Committee, total expenditures in 2009 would have been $18.3 million rather than $31.5 million.

Mark Uncapher

Montgomery County Republican Chairman