Center for American Progress: Fiscal Responsibility
July 31, 2008
Thank you very, very much. It’s great to be with all of you. John (Podesta), thank you for your very kind introduction. And thank you for the extremely important work that you do here at the Center. It’s great to be with all of you at the Center for American Progress. Given all of the setbacks that our country’s strength and international standing has suffered in the last several years, I always feel a tremendous sense of optimism in coming to a place like this that’s dedicated to the notion that with honest reflection and positive actions, our best days can actually still be ahead of us.
Last year, when you were kind enough to speak with us, to be honest, we were like a rookie quarterback that had just signed their first contract. We had high hopes but very little yardage on the field as yet. But now, after some of the scars and bruises from a year and a half of moving that ball of progress up and down the gridiron, it’s good to be able to share some reflections and some highlights with friends.
These are tough economic times, as we all know. The Wall Street Journal reported just a few days ago that, combined, our state governments are facing a $40 billion budgetary shortfall. Some of these fiscal wounds are, of course, cascading down to states from an enfeebled federal government and a slowing national economy. And others are self-inflicted. Many states have had to deal with budget shortfalls by carving into priorities like public safety or public education or health care. The Wall Street Journal wrote about some of the pain that’s being felt by foster parents who are seeing their reimbursements cut by states, even as the price of food and fuel rise. Other states are raising the cost of in-state college tuition by double-digit percentages, which unfortunately and unwisely then pushes the opportunity of a college education beyond the reach of so many working families.
Now, of course, none of these options are popular. But while some of these choices pull us backwards, there are other choices that we can make that can and will and must move us forward. And I want to share with you a few thoughts about the choices that we’ve made recently as a free people in Maryland about the centrality of fiscal responsibility to the cause of progress and about why, I believe, the timeless values we choose to embrace again are so very, very important to the future of our country, especially in these challenging times.
In other words, I want to talk to you about the American value of fiscal responsibility. I want to talk with you about the politics of posterity. You see, when I was sworn in as Governor of Maryland, I inherited not only a proud and revolutionary tradition, but I also inherited a less proud and very crippling $1.7 billion budget deficit and a structural deficit. A $1.7 billion deficit in a $15 billion general fund and very difficult economic times. And we found ourselves very quickly facing that age-old dilemma of whether we would allow circumstances to change us or whether we would change our circumstances.
Making Government Work
You see, my Lieutenant Governor, Anthony Brown, and I did not campaign on that cotton-candied falsehood that our government cannot work. To the contrary, the first three points of our 10-point plan for moving Maryland forward were these: Number one, we will make our government work again; number two, we will make our government work again; and, number three, we will make our government work again. Call me old-fashioned, but I think since all of us pay taxes, our government should actually work for the hard-earned dollars that we invest in our common good.
You know, there’s a classic Groucho Marx routine where he’s in a very exclusive white-table-cloth restaurant, and eventually, at the end of the meal that he’s having with his friends, the waiter puts the tab down in front of Groucho. And Groucho looks at the check, and he says, “This check is an outrage.” He hands it to his buddy and says, “I wouldn’t pay it if I were you.” (Laughter.)
Well, in our recent history as a State – and I think most of you would agree, in our recent history as a nation – we’ve been a bit like Groucho Marx at the restaurant table, except instead of passing on the check to our dinner companions in the here and now, we have also been passing on that check to future generations, to the next generation. And adding insult to injury, we’re also passing along collapsing bridges and crumbling infrastructure, devastated cities and a depleted and exhausted military. We’re passing along temporary learning shacks instead of modern classrooms. We’re passing on a plague of home foreclosure where once there was rising home ownership. We’re passing along unaffordable college tuitions, where once there was opportunity for all. We’re passing along a federal government so weakened by the gluttonous politics of the present that it cannot even manage to get bottled water to the dying citizens of a hurricane-ravaged city like New Orleans.
When faced with a crippling structural deficit in Maryland, we asked our neighbors to embrace once again the politics of posterity – the politics which embraces the duty we have, not only to our neighbors, but also to the next generation. The politics that believes, in fact, our tomorrows can be better than our todays and that each of us has a personal freedom and a moral responsibility by our own actions and, yes, by our own investments to make it so. Just as our parents and grandparents built our roads, our schools, our hospitals with their hard work and their hard-earned dollars, we asked our fellow Marylanders to join us in choosing a better future for our children and for our grandchildren to practice again the politics of posterity.
Restoring Fiscal Responsibility in Maryland
Well, while a slowing economy exacerbated our circumstances in Maryland, the primary cause, unfortunately, was really of our own making. What do I mean by that? Well, in a flash of bipartisan irresponsibility, we had locked in a few years ago a nearly $2 billion increase in expenditures, mostly for public education, while at the same time cutting income taxes for millionaires and everybody else, at a cost of another billion dollars.
Well, that math eventually does not work. And despite a few billion dollars that our predecessor pushed through in backhanded and stealthy property tax increases, every imaginable toll and fee increase and a 40 percent hike in college tuitions, the chickens of our bad math were coming home to roost, and they were coming home very quickly and early in this new administration. In the words of the great Abraham Lincoln, we could no longer escape the responsibility of tomorrow by evading it today.
Now, nothing that we did was popular, and nothing that we accomplished in the three-week special session was easy. In fact, get this, four of the six pieces of legislation that made up for the fiscal fix, four of the six pieces of legislation passed by a margin of just one vote in either the House or the Senate. But through all of that difficult consensus forged in time, the countless meetings with Democrats and Republicans alike, one on one, in groups and delegations, we continued to proclaim those shared goals that at the end of the day needed to unite us in our purpose.
And what were those goals? The same as they are today, to strengthen and grow the ranks of our middle class, including our family businesses and our family-owned farms; to improve public safety and public education in every part of our State; and to expand opportunity – the opportunity to learn, the opportunity to earn, the opportunity to enjoy the health and the people we love, to expand the opportunity to enjoy the environment we love to more people rather than fewer – most importantly, future generations.
With a lot of hard work and with a lot of tough votes, we were able to restore fiscal responsibility, starting by reducing future spending growth by about $2 billion. We were able to make these cuts in less than two years while adhering to rational spending affordability guidelines – guidelines which, by the way, our predecessors had totally ignored when they allowed State spending to balloon by 22 percent during their final two years in office.
We also eliminated 700 government positions. We implemented performance-based management practices through a new program called StateStat that helped us eliminate nearly 20 million in overtime costs. We eliminated, or rather, recovered $20 million in Medicaid fraud recovery. We closed a very obsolete and violent and shameful place known as the House of Corrections, which was not only the right thing to do for the safety of all of those who worked there, it also resulted in ongoing savings of about $10 million a year for taxpayers.
And we also replaced what had been well-intentioned funding indexes that had really juiced unsustainable annual increases in the past and threatened to accelerate spending in the immediate future. In addition to reducing spending growth, we were also able to pass a package of legislation that modernized our tax code while lowering the income tax rate for 90 percent of Marylanders and increasing the State earned income tax credit for hard-working families and our aspiring middle class.
At those $2 billion and very difficult cuts in spending reductions, the basic elements of the tough revenue options were these, and again, none of them popular:
- We raised what was the 42nd lowest sales tax in the nation from five cents to six cents, and we dedicated a portion of that increase yield to our Transportation Trust Fund – a fund like Program Open Space that had been hit over the years, time and time again, rather than going to traffic solutions and mass transit. We also raised by a dollar the tobacco tax.
- We passed, believe it or not, the first progressive income tax in the history of our State, asking those who made more than a million dollars a year to pay more, while reducing the rate slightly for others and really substantially for families earning less than $125,000 per year. Combining the effects of the progressive income tax with the sales tax, 46 percent of Marylanders actually ended up seeing their State tax burden reduced.
- We provided additional relief for working families by increasing by 33 percent the personal exemption for people making less than 75,000 a year, and by increasing the State earned income tax credit by 25 percent.
- We also raised the second lowest corporate income tax in the Mid-Atlantic region by about 1 percent, and we split the proceeds of that between the Transportation Trust Fund and the first ever higher education trust fund to keep college education more affordable.
- And finally, we agreed to send the deadlocked issue of limited State-controlled slot machine gambling, at just five locations, to referendum in order to let the people finally decide an issue that had been divisive and gridlocked and deadlocked in our State for many years. Closing this loophole will allow us to retain approximately $500 million that otherwise would go across the river to West Virginia and over the Mason-Dixon Line to Pennsylvania or to Delaware.
So, those were the basic elements of the things that we did. These are difficult times and even more difficult now than they were eight months ago when we called the special session. But even then, our neighbors were hurting, and it was not something that any of us enjoyed doing or that we relished. We’re asking our neighbors to sacrifice more at a time when they were already feeling hammered, where the dollar was already being weakened.
None of these decisions were made lightly, but at the end of the day, like so many of our counterparts in other states, our backs were up against the wall, and none of us want to be part of the first generation of Americans that leaves our State, our country or our world in a weaker condition. We all want to be able to pass on this world to our kids, to give them a better opportunity in life.