Blue State Delusion: Taxes, Borrowing, and Gambling Will Fix Budgets

It has become a familiar pattern in states that have sacrificed long-term financial stability for short-term political expediency.

As predicted by many economists, states that have not already begun to deal with unfunded liabilities and out of control spending are showing substantial deficits. Governors who have not confronted public sector union demands, made cuts to state offices, and reformed state welfare programs are now putting on tough and stern faces, threatening “doomsday” budgets as they call for deep cuts in department budgets and state services that they probably know will never come to fruition. Governing from “crisis to crisis” is the liberal way, and, subsequently, the dysfunctional way.

In addition to California, the poster child of liberal-led states that always seems to be teetering on the edge of bankruptcy, states like Maryland and Connecticut are sinking as well, resorting to gambling and more borrowing to try to make up revenues that they naively thought were going to be there for them.

Gov. Martin O’Malley (D-Maryland) is facing a “doomsday” budget and more gambling in his state to be able to avoid $500 million in cuts that were triggered when his Democrat-led legislature failed to pass his income and gas tax increases during the regular legislative session. The governor must call a special session of the legislature to pass a budget before July in order to avoid the “doomsday” budget scenario.

Gov. O’Malley, the head of the Democratic Governors Association, and considered to be a viable potential Democratic presidential candidate in 2016, is facing a May 23rd deadline, when about $130 million in cuts is due to the state Board of Public Works to balance his state’s budget if sufficient revenues are not realized.

At the end of the regular legislative session, state leadership in Maryland was left with political gridlock, a botched budget deal, and angry finger-pointing among the governor and the two Democrats who head the state House and Senate.

According to Gov. O’Malley, state Senate president Thomas Miller, in an effort to expand gambling in the state, held hostage the budget proposal to avoid the $500 million in spending cuts through the increase in taxes and shifts in pension cost funding to local governments. “Seemingly, the Senate was not capable of passing the compromise and consensus budget without also passing gambling,” Gov. O’Malley said.

But, Sen. Miller, complaining that the governor did not do enough to whip up votes from lawmakers who were skittish about raising taxes in a recessive economy, responded, “If you don’t have the chutzpah or the nerve or the guts or the gumption to pass taxes, that’s what’s going to happen.”

In Maryland’s state House, leadership would not consider raising taxes on people who make less than $100,000 per year, and time ran out on the session before a budget deal could be reached.

But, here’s at least one important point. Maryland is one of only three states that foots the entire cost for teacher pensions, and pension costs have doubled in the past five years to about $1 billion. Both Gov. O’Malley and Sen. Miller believe that, since local governments set teacher pay, they should pay part of the pension costs, a shift that localities argue is too big a burden for them. Though the state relied heavily on a better return on their fund investments in the market this past year, as well as on some reforms which require state employees to contribute more of their salary to their pensions and work longer prior to being eligible for benefits, Maryland’s pension system is still expected to be funded at only 65.3% of future liabilities.

Maryland had a poor showing in a study by the Institute for Truth in Accounting (IFTA), which assesses the quality of financial reporting in the 50 states. Maryland ranked 42nd out of the 50 states in the IFTA study and comes in ranking 42nd as well in the Tax Foundation’s State Business Climate Index. In addition, Maryland’s committee of lawmakers, which sets the state’s spending guidelines, has increased Maryland’s budget an average of five percent every year since 1985.

Not to be outdone is the state of Connecticut, the “Sinkhole” state of the nation, ranking 50th in the IFTA study, and led by Democratic and Working Families Party Governor Dannel Malloy, as well as a Democrat-run state legislature. Gov. Malloy was intensely critical of his Republican predecessor, M. Jodi Rell, who approved $1.2 billion in borrowing and interest charges to close a budget gap, even though she had $1.4 billion in a Rainy Day Fund, a stash she and the Democratic legislature planned to use in the following year’s budget in order to avoid tougher decisions about budgetary planning. But, despite blasting Gov. Rell’s action, Gov. Malloy has just announced that he will be using the state’s credit card to cover its operating costs by diverting over $220 million, assigned last year to pay off the state’s debt, to close a widening gap in the current budget. Like other states with deficits, Connecticut is showing much lower tax revenues than expected. In addition, tax revenues are expected to be down by more than $310 million in 2013-14, leading Republican state lawmakers to warn of yet more increases in taxes.

More taxes are hard to imagine as 2011 in Connecticut saw the largest tax increase in the history of the state, including a retroactive income tax which forced taxpayers to pay double the new, higher income tax rate in the latter half of the year to make up for the first half. Democratic lawmakers believed increased taxes, rather than major reforms in public sector union mandates and cuts in state programs, were required to balance the budget. Yet, they also passed an Earned Income Tax Credit of $1700 for people who essentially pay no income tax at all. Will liberals ever comprehend the positive relationship between more jobs and higher tax revenues? Giving people who pay no taxes more taxpayer money doesn’t increase tax revenues.

During his gubernatorial campaign in 2009, Gov. Malloy said, “Increasing debt makes responsible budgeting less possible. And, it is simply irresponsible to leave more and more debt for future generations.”

Fast forward to 2012, the governor’s budget office is using the age-old liberal strategy of “human shields” to cover for their irresponsibility in budgetary planning. The office states that by borrowing more money “we won’t be forced to cut essential services for Connecticut’s most vulnerable residents.”

Connecticut’s “delusional thinking” has won it the distinction of being the seventh worst state for business in the United States. In a survey of CEO’s, one commented, “Connecticut has continued to raise taxes and implement additional regulations the opposite of what is required to stimulate growth. Lowered bond rating raises longer term risk of doing business in the state.” Yet another CEO stated, “Connecticut continues its rapid decline and it’s getting ugly.”

What if liberal state lawmakers treated every day like it’s doomsday? What if they actually made the real cuts that are needed to streamline government and make it more efficient, so that the private sector can do what it’s supposed to do–create jobs? When will citizens in these states realize that tax hikes, borrowing more money, and choosing the gambling industry over others are only temporary plugs in an already badly damaged dam?