Hard Times, Hard Choices The bleak economic news du jour is that in December, for the first time since 1976 when the Bureau of Labor Statistics first started tracking the information, the unemployment rate went up in all 50 states. The national unemployment rate for the month was 7.2%. Michigan and Rhode Island (Rhode Island?) had the worst unemployment rates at over 10%.

Maryland continues to lose jobs; so it is small consolation that amidst all the gloomy news, our state’s unemployment rate of 5.8% was still one of the lowest in the nation. Last week, a grim Governor O’Malley outlined the budget cuts the state would be forced to make to cover the $2 billion deficit that Maryland’s government is facing, including cuts to schools (which I feel should be avoided). The cuts the Governor outlined were based on Maryland’s receiving $350 million from the $825 billion stimulus plan put forth by the Obama Administration.

Now the news is that Maryland could get up to $3.5 billion over two years from the stimulus package. About half the money is to pay for Medicaid, education and unemployment insurance. The other is more generally designated for “balancing the state’s budget”.

As a result, the Governor has postponed any action on budget cuts. President Obama warned that we would all have to make hard choices, but that may not apply to Maryland government if we get all this money.

In previous recessions, budget cuts have been finessed by various means to minimize their impact on state services in the hopes that the economy would improve, revenues would rise, and further cuts could be avoided.

This recession has already been severe; and the economy is getting worse as companies continue to announce layoffs. No one knows how long it will continue. More concerning is that no one knows if the stimulus package will turn the economy around. If it doesn’t and the recession continues, Maryland is likely to face continued deficits.

Even though Maryland’s economy is cushioned by the employment that is tied to federal government, our state’s overall economic health is still tied to the national economy. If the economy continues to go down hill, we are going to face further problems.

These clearly are not normal times. The $3.5 billion will be used to avoid making budget cuts to necessary services and education, but aside from those, Maryland should avoid the temptation to postpone tough decisions by using remaining amounts to balance the budget. Maryland government officials should be cautious and plan for continued hard times. We shouldn’t count on the stimulus to avoid cuts that are needed to address the budget imbalance the state is likely to continue to face.

Budget cuts aren’t the only option. I was glad to see Senate President Mike Miller call for a gas tax increase as a way of generating new revenue. A modest $.10 increase in the state’s gas tax could produce $300 million in revenue annually that can be used for much needed transportation projects that can also create jobs.

Making budget cuts and increasing the gasoline tax are not going to be popular as it requires more pain to be borne by the citizens of Maryland. But it is up to our leaders to explain why they are necessary in these extraordinary times.

There are tough choices to be made – but responsible leadership requires making them.  9:43 AM •  3 Comments • Links to this post

Happy New Year (?) Most of us can say good riddance to 2008. As 2009 unfolds, good news is still hard to find. But why not try to be hopeful?

First, oil and gas prices are down substantially from their highs last summer. Gas at $1.50 feels like a bargain, and it is. The deflation in energy prices is directly affecting other commodity prices – food is cheaper for one thing. While you may not see the benefits of this directly, your local grocery chain and restaurants are happy to see their costs of goods declining. And if they are making money, that will be good for employment.

Another area of potential savings is from lower interest rates. With mortgage rates at around five percent, there is money to be saved in re-financing your home loan. Companies with debt are also benefitting as their costs of borrowing have declined.

While not all of the massive spending that will be targeted by the Obama administration to infrastructure projects will find its way into the economy immediately, there may be enough to improve the job picture by the end of the year. If employment stabilizes, consumers may see that the worst is behind them, and they may start to spend some of these “savings”.

That is the optimistic view, but even if it comes to pass, it won’t help state and local governments where tax receipts continue to decline. Here in Maryland, the Governor and legislature must find $450 billion more to cut in order to balance the state budget before the end of the fiscal year in June. And the projected deficit for 2010 is $2 billion – don’t be surprised if that estimate increases.

President-elect Obama just announced the appointment of a Government Performance Officer to improve government efficiency and budget practices. Governor O’Malley should do the same here in Maryland.

Budget cutting is necessary, and there is no doubt that there are programs that aren’t delivering any bang for the buck and should be cut. But it is hard to imagine that education is one of them.

Education is a priority in Annapolis except when spending has to be cut. Local education aid is on the cut list, as are reductions to state colleges and universities. Maybe money targeted for education should be spent differently, but less money isn’t going to make schools better.


It is not likely that anyone is going to call for a tax increase – the state already raised some taxes last fall and the State Department of Transportation just announced an increase in tolls and EZ pass administrative fees.

But there is one option left that makes sense from several standpoints, and that is increasing the state gas tax.

We all suffered when gas prices went over $4 last year. We also adjusted by driving less.
Placing a tax on gas when it was $4/gallon would have been painful. But at a $1.50, we can all afford a gas tax increase at this time. There are recommendations to raise the federal gasoline tax, but Maryland should not wait for the Congress and federal government to act first.

That increase could be used for transportation projects that would create jobs, and as was done in the past, some money could be “borrowed” from the transportation trust fund to support local aid to education.

No one likes a tax increase, especially now that every dollar matters. But given the “bonus” we have received from lower gas prices, raising the gas tax makes sense to both soften the blow of budget cuts, and as a source of revenues that can help stimulate the state’s economy.

Common sense is often a casualty of fear; a proposal to increase the gas tax would generate a lot of BTU’s of heat in the halls of the State House from those who have to go before the electorate in less than two years.

There are no easy choices; but there are right ones and raising the gas tax is the right thing to do.  3:58 PM •  0 Comments • Links to this post