You stumble upon some extra money lying around the house — some spare change behind the sofa cushions or the equivalent. You might be pleased with your unexpected good (albeit only modestly so) fortune, but you probably wouldn't be looking to spend it immediately or think it significantly changes your family finances.
Yet it appears that in Annapolis, the presence of about $229.7 million more in revenue at the final close-out of the last fiscal year, which ended June 30, may actually prompt that kind of thinking. Comptroller Peter Franchot has even gone so far as to issue a press release warning Gov. Martin O'Malley and state lawmakers that the fiscal 2012 fund balance should be saved, not spent.
With all due respect to the state's tax collector, here's the only proper response to such an observation: "Well, duh."
Pardon us for getting on our high horse on this subject, but things like state budget deficits and surpluses are matters that are easily manipulated by the political class these days. That Maryland recorded slightly more revenue than expected is certainly not bad news, but it's hardly a matter of great significance in the bigger picture.
Here's the reality. The state slightly exceeded projections for revenue over the past year, chiefly from the personal income tax, corporate tax, sales tax and the lottery (that last category helped by higher-than-usual Powerball jackpots). Some sources of revenue actually fell short, most notably income from interest on investments, which was $12 million less than projected (thanks to minuscule interest rates). In a $14.26 billion annual revenue stream, a $229.7 million revision represents a change of a scant 1.6 percent, a modest adjustment.
Sure, Gov. Martin O'Malley or anyone else in the State House could stand up right now and thump their chest and say that Maryland has a budget surplus. Throw in the Rainy Day Fund and other necessary fund balances and you could even claim it's $1 billion or more. Aren't we fiscally prudent?
But that would be horribly misleading, and it is certainly no cause to talk about new spending or even reducing taxes. Revenue projections are never perfect, so budgets must have some margins of error. Without a significant fund balance, Maryland would lose its coveted triple-A bond rating, the highest possible, and the state's borrowing costs would rise.
The more essential question, however, is: When is a surplus a surplus? In the current fiscal year, the state's budget is regarded as balanced. In fiscal 2014, however, the state is expected to run a $700 million deficit — although this latest unexpected revenue could conceivably reduce that to $500 million.
In either case, the presence of a long-term structural deficit is why the Maryland General Assembly chose to raise personal income taxes this year on high wage earners and a big reason why the state has been pursuing gambling revenue. In the long term, government spending is growing faster than revenues, and that's just to preserve existing programs, not expand them.
And here's where it gets even more idiotic. Washington has become completely flummoxed by its own budget difficulties in recent years. The federal government faces a "fiscal cliff" that threatens both significant cuts in spending and the expiration of the Bush tax cuts. A recent Congressional Budget Office report concludes that the combination could send the U.S. spiraling into another economic recession by early next year.
Now try estimating Maryland's tax revenue, post-cliff. The higher federal income tax rates might help, but the state could be hurt badly by the loss of federal spending. Throw in job losses caused by a new national recession, and all sources of revenue could plummet.
In short, having a couple of hundred million extra in the state's bank account right now is hardly worth mentioning when the future looks so dicey. That's no surplus; at best it's a downward adjustment in the projected fiscal 2014 deficit. Annapolis can keep the champagne corks firmly in their bottles.
In the meantime, Marylanders ought to be suspicious of anyone who thinks this state — or any other state — is living like a pig in clover. The economy has certainly improved since the last recession, but the failure of Congress to compromise over matters of taxes and spending makes any form of government surplus a purely short-term condition.Copyright © 2015, CT Now