Stimulus money within state's grasp

Wednesday, Feb. 4, 2009

ANNAPOLIS — "A billion here and a billion there, and pretty soon you're talking real money."

The words of late Illinois Sen. Everett M. Dirksen are more relevant than ever in these turbulent times, with the U.S. House passage of a $819 billion federal stimulus bill and state leaders across the country — including Maryland — already banking on the money to help balance their budgets, pay for their projects and revive the economy.

Betting on the "real money" is inevitable and necessary in these dire financial times, say some economists, but will not erase the structural problems that exist in the Free State.

"Maryland and Virginia and every other state that is running into problems will have to reduce expenditures," said Stephen S. Fuller, a regional economist at George Mason University. "There is nothing that will save that."

But, he added, avoiding raising taxes and layoffs is the right thing to do now because the economy is hurting, "and we can't wait on it to fix itself."

Maryland stands to receive nearly $4 billion in stimulus funds over three fiscal years, Gov. Martin O'Malley (D) announced last week.

According to figures supplied by the governor's office, the state would receive more than $1.9 billion in 2009 and 2010. In those years, nearly $524 million would go for capital projects, like roads, schools and water projects.

The state would receive $226.2 million each year as part of a fiscal stabilization fund. The federal government also would pick up a greater portion of the state's Medicaid tab, saving the state $482 million each year.

The newfound finances led O'Malley to halt another round of budget cuts for the current year. He already had included $350 million in stimulus money in his spending plan.

Both were savvy moves, said Neil Bergsman, director of the Maryland Budget and Tax Policy Institute in Baltimore.

"It would have been counterproductive to make these cuts if the cavalry is riding to the rescue from Capitol Hill," Bergsman said.

If he were making the decisions, his first move after getting the stimulus money would be to rid the state budget of potential layoffs (O'Malley included 700 layoffs in his budget proposal), then repair the social safety net by refilling staffing in social agencies.

O'Malley's budget includes a $46 million fund balance — money that is used to cover cost overruns and emergencies.

Considering where the economy is headed, the fund balance should be 10 times O'Malley's budgeted amount, said Warren Deschenaux, director of the nonpartisan Office of Policy Analysis.

But Del. Murray Levy said the second year of the stimulus money can act like a fund balance.

Deschenaux disagrees.

"We've already programmed a recovery into the numbers, and we're still getting worse," he said.

Since the recession, Maryland has lost $1.5 billion in revenue.

Levy was more optimistic.

"When will [the economy] recover? Nobody knows," said Levy (D-Charles). "But they're giving away money for two years. Let's hope and pray it does its job and the economy recovers."

Money frees you from doing things you dislike, so said comedian Groucho Marx and Christopher Summers, president of the Maryland Public Policy Institute in Germantown.

"This stimulus will only prolong the decisions that Maryland needs to make about addressing spending priorities in Annapolis," said Summers, who called O'Malley's plan to use stimulus money to balance the budget "reckless policy at its worse."

Senate President Thomas V. Mike Miller Jr. also sees a similar down side to relying on stimulus funds.

"It's going to encourage the states not to make a lot of tough decisions that they should be making in terms of avoiding the problems in the out years," he told a roomful of lobbyists last week at the Maryland Government Relations Association legislative breakfast.

One area that Miller (D-Calvert, Prince George's) wants to address now is how teacher pensions are funded. Talk of shifting some of the costs for the retirement plan from the state to the counties has generated a great deal of debate around Annapolis.

"What's going to happen when these things [the stimulus payments] are gone and the bills keep on coming and coming and coming," said Miller. "It would be better if we dealt with it now while we can and we have the impetus."