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Maryland's found money

In the latest battle between the states, officials in Virginia and Maryland are squaring off over whose budget-balancing prowess is greater. First, after Virginia Gov. Bob McDonnell announced his state ended the year with $544 million in cash, $234 million more than expected, the Republican Party there crowed that Maryland Gov. Martin O'Malley was, at the same time, predicting a $1 billion shortfall and floating the possibility of tax increases. "Contrasts don't get much clearer than this," a GOP news release said. But then Maryland ended fiscal 2011 with $1 billion in cash, $344 million more than expected. Mr. O'Malley found a way to gloat while simultaneously promising not to, saying he would love to call that a surplus, but "that's not the way we do things on this side of the Potomac."

It's good that Mr. O'Malley isn't pointing to the state's good fortune as evidence of brilliant fiscal management because it may prove short-lived. Virtually all of the extra cash was due to an increase in income tax collections, the most volatile part of Maryland's revenue mix. And the way the numbers break down suggests that they are less a harbinger of future growth than a reflection of past activity. According to a report from Comptroller Peter Franchot's office, more than $200 million in excess cash was a result of people having underpaid their estimated taxes during the 2010 tax year and, at the end, having had to make additional payments or getting smaller than expected refunds. That speaks more to how bad things were in 2009 than how good they were in 2010 — or what we can expect from 2011 and beyond.

And the signs aren't great. Sales tax receipts rose by less than expected last year, a function of unsteady consumer demand and high gas prices. And although Maryland has posted respectable if not spectacular job gains in recent months, the latest national figures, out Friday, point to an overall slowdown in the labor market. Another significant chunk of Maryland's unanticipated revenue came from investment income, the result of a long rebound in the stock market that appears to have been derailed in August by the U.S. credit downgrade, debt worries in Europe and other factors. And efforts to rein in spending in Washington are bound to hurt Maryland's bottom line.

In the end, this $344 million may mean very little to Maryland's finances and likely doesn't diminish the need for the state to seriously consider tax increases or other new revenues. It's a bit like getting the "Bank error in your favor" card in Monopoly — helpful, perhaps, but not a game-changer. We may have ended fiscal 2011 with more cash than our larger neighbor to the south, but our long-term imbalance between projected spending and revenues is nothing to brag about.

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