Home Archived Articles Hogan’s $42B Budget Boosts Spending, But Offers Surplus, Tax Cuts

Hogan’s $42B Budget Boosts Spending, But Offers Surplus, Tax Cuts

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Democratic legislators in Annapolis are trying to whip themselves into some kind of a fury over Gov. Larry Hogan’s budget, but the best they can come up with are frowns, questions and a vague sense of unhappiness.

It is hard for them to label the Republican governor as a skinflint and penny pincher when he proposes to spend $42.3 billion, a 5% increase over last year. What’s more is he has funded all the spending mandates the legislature has ever passed, including the one they enacted last year when he withheld $68 million in education aid.

Hogan wants to spend more than last year on most programs, yet he does it with no new taxes and a proposal for admittedly modest tax and fee relief — only about $23 million in the first year — but growing to $145 million in four years.

“I can’t imagine any member of the legislature from any party having a problem with providing tax relief to retirees on fixed incomes, struggling working families or struggling small businesses,” Hogan told reporters. The people of Maryland are demanding tax relief and “Anyone that isn’t in favor of that probably doesn’t deserve to be in the legislature. I can’t imagine how anyone could vote against common sense measures.”

Copying Tax Breaks

One of the reasons Hogan could make such an aggressive statement is that two of the measures were so modest and mainstream that the worst a Democratic party spokesman could say about them was that they copied proposals by Democrats and Hogan didn’t say how he would pay for them.

One of them simply accelerates the Earned Income Tax Credit for working families making less than $53,000, a plan sponsored by a Democratic delegate from Baltimore now on Hogan’s staff, Kieffer Mitchell, Jr.

Hogan didn’t have to say how he would pay for small tax cuts because the state is awash in cash, and he has set much of it aside in the $1.1 billion Rainy Day Fund and a state surplus of $450 million. Both amounts are far larger than the legislators typically have allowed, and they may be tempted to cut those amounts, but they can’t force Hogan to spend the money elsewhere.

Hogan said he won’t spend any more, even if the legislature tries to force him by “fencing off” extra spending, much as they did on $68 million in school aid last year.

“Fencing off money will not work,” Hogan assured legislators. “We’ll be happy to hold onto the money and build up our reserves,” since the unspent money goes to the bottom line.

No Budget Tricks

Hogan has avoided using any of the budget tricks Gov. Martin O’Malley did when revenues came up short during the lean years. O’Malley would transfer money from special funds created with dedicated taxes for open space and the Chesapeake Bay into the general fund, and replace the money with bond debt. O’Malley would also adjust various mandates to reduce the amount he had to budget for them.

To achieve that money shifting, O’Malley used a separate piece of legislation called the Budget Reconciliation and Financing Act (BRFA). Since Hogan is using none of these transfers and mandate reductions, he doesn’t need a BRFA, and that gives the legislature less leeway to play with the budget figures.

Hogan does plan on submitting legislation to limit mandates in years when revenues do not match the mandated growth in spending, but the legislature has not seen the details.

Ironically, by closely following the mandates, Hogan’s budget reduces education aid to Baltimore City by $24 million, because the city has increased wealth and declining school enrollment. But the city will still get the most per pupil in direct aid of any jurisdiction in the state, $12,022. That compares to $5,590 per pupil in Howard County and $5,358 per pupil in Anne Arundel County.

The Other Tax Relief

In order to bring back manufacturing jobs, Hogan proposes eliminating the state corporate income tax for 10 years on new manufacturers in areas designated as Empowerment Zones. That includes Western Maryland, the lower Eastern Shore and Baltimore City. Individuals who earn less than $65,000 per year and are employed by new manufacturers in Empowerment Zones would pay no state income taxes.

Hogan also proposed reducing the annual business filing fee with the state Department of Assessments and Taxation of $300 a year to $100 during the next four years. That’s a minor nuisance to big company, but a big deal for a small business. The governor also wants to raise the extra $1,000 personal income tax exemption for taxpayers age 65 and over that already exists to $5,000 during the next four years. The state already exempts all Social Security benefits from taxation up to $29,200 a year.

High Ratings

Hogan has a strong hand dealing with the legislature, not only constitutionally, but politically as well, with some of the highest approval ratings seen for any recent governor.

In a Gonzales Research poll taken in mid-January, two-thirds of all voters (67%) approve of the job Hogan is doing and only 19% disapprove, a higher approval rating than ever achieved by either of his two predecessors.

Three out of five voters (60%) believe Maryland is headed in the right direction, while 22% say the state is headed on the wrong track, with 18% giving no answer.

Veteran pollster Patrick Gonzales called the rating “extremely impressive.” He compared it with Republican Gov. Bob Ehrlich’s “high-water mark” during his four-year term, 57% approval, in August 2003, with 30% disapproving.

Gov. Martin O’Malley’s highest rating in his eight years in office was 58% in January 2011, shortly after his re-election in a rematch with Ehrlich, and 30% disapproved. Hogan gets particularly high marks from Republicans (94%) and independents (78%). Almost half of Democrats (49%) approve of the job he is doing.

Visions of Second Term

Hogan celebrated the first anniversary of his inauguration (and second anniversary of his official announcement he was running) with more than 1,000 people in the banquet rooms at the Navy-Marine Corps Stadium in Annapolis.

“What a Difference a Year Makes” was the theme, as Hogan listed his achievements, some a bit exaggerated, such as taking credit for $400 million in local income tax refunds that were ordered by the U.S. Supreme Court.

“If we can get all these things done in just one year, while dealing with riots and battling with cancer, just imagine what we can accomplish over the next seven years,” he said, as the crowed hooted and hollered. “Folks, we are changing Maryland for the better, we are making progress, we are just getting started. You ain’t seen nothin’ yet.”

It was not the first time Hogan has suggested he wants to be a two-term Republican governor, the first in 60 years since Theodore McKeldin in the 1950s. It certainly won’t be the last time he brings it up.

The high approval also showed Democrats that they need to do a more effective job driving his rating down, since their persistent attacks of his withholding education funding have not worked.