Monday, January 31, 2011

A Deficit of Leadership: Brian Murphy Responds to Governor O'Malley's Budget

Thanks to former Republican gubernatorial candidate, Brian Murphy for answering our request to respond to Governor O'Malley's budget proposal. --MN


Great challenges don’t create leaders: they reveal them. Much like every government in the world, Maryland finds itself in a fiscal malaise of its own creation. But times of great challenge are often the times of greatest opportunity.

The problems facing Maryland, and governments around the world, are simple. We have not adapted our methods of delivering services and entitlements in the face of new economic realities. Expenses must be pared down while maintaining service levels. Although this sounds daunting, bear in mind this is precisely what Maryland families do around their kitchen tables every day.

For the better part of a decade, government growth in Maryland has exceeded that of the private sector. In each of the last four years, we have employed record tax increases, record federal fund transfers in the form of stimulus dollars, and, as is again the case in Governor O’Malley’s latest budget proposal, a plethora of one-time transfers and accounting maneuvers to balance our budget. But the deficits remain because the root causes were never addressed.

In spite of our budget failures, Maryland is in an enviable economic position. The Economist recently reported that while the median income of the American citizen has fallen since 2000, the median income in just five states has risen. Yes, income in Maryland increased, but we were the lone improving state whose economy was not driven by commodities. Maryland’s primary growth engine was federal spending. And while I have no interest in vilifying the federal government, or government employees and contractors, we must be realistic. Governments around the world are implementing austerity measures. It is a matter of time before people in Indiana and Florida grow tired of subsidizing the growth of Maryland’s economy.

Maryland should be a desirable business destination: excellent infrastructure, exceptional (for the most part, as we will discuss later) public schools, and an abundance of recreational outlets. Our Achilles heel is our government’s inability to seek best practices. Our tax burden is among the highest in the nation. Yet every year Maryland families and businesses are required to pay higher taxes and fees just to receive the same level of service.

Governor O’Malley, Maryland’s chief executive, was reelected because voters believed he would make the decisions needed to address our fiscal failures. Maryland can expect budget deficits for the foreseeable future, but this creates an extraordinary opportunity for Governor O’Malley. His budget for the coming fiscal year could deliver much needed reform, and guarantee economic growth for decades to come. To our collective detriment, it does not.

Last year, Maryland’s budget was $32.4 billion, the greatest in our history. This year, Governor O’Malley has proposed to increase that budget by almost 5%, again outpacing the private sector. Politicians on both sides prefer posturing to proposing real solutions. So when Red Maryland asked me to weigh in, I was happy to oblige. Below is a summary of our most pressing fiscal concerns, and the ways I believe we should address them.

Three of the largest components of our budget are Education, Health Care, and Human Resources. They represented $12.1 billion, $8.7 billion, and $2.1 billion, respectively, of last year’s budget, or almost 71% of all spending. While they represent three of the most vital functions of state government (the fact that Transportation spending decreased in nominal dollars for each of the last three years, and that Public Safety spending has not kept pace with inflation for the past four years is a discussion for a different day), they also harbor Maryland’s most inefficient and anachronistic policies. The same services can be delivered better, faster, and more efficiently.

Last week, President Obama announced during his State of the Union address that we must “out-innovate, out-educate and out-build the rest of the world. We have to make America the best place on earth to do business. We need to take responsibility for our deficit and reform our government. That’s how our people will prosper.” While I agree with his intention, I respectfully submit that both he and our Governor are misguided in their proposed remedies. The right policies will lower costs, maintain our standard of living, and free private sector dollars to out-innovate, out-educate, and out-build every other state and the world at large.

Education: Earlier this month, Maryland public schools were ranked number one in the nation by Education Week for the third year in a row. As a product of Maryland’s public schools, I can attest to the importance of a quality public education. But buried in the report was mention that Maryland ranked 37th in terms of educational disparity between higher and lower-income students. This disparity destroys opportunity for lower-income students, and wastes resources of the Maryland taxpayer. Monopolies create shortages, inflate prices, and lower quality. This is true in business, and this is true in education.

School choice has been championed in Maryland by Governor Robert L. Ehrlich, Jr., and nationally by groups such as BAEO, the Black Alliance for Educational Options, of which I am a proud member, and films like “Waiting for ‘Superman’” and “The Cartel.” There are many viable paths to reform, including, but certainly not limited to, voucher systems, charter schools, public-private partnerships, tuition tax credits, parent “triggers” and home schooling. In our current system, excellent teachers are not properly rewarded and poor teachers are not properly identified. Our students deserve better.

The same citizens who suffer from poor educational choices are later saddled with higher taxes which lower their standard of living. Lower-income children deserve more effective educational options. And when they receive them, all Marylanders will benefit.

Health Care: The same principles driving the urban education debate also apply to our current discussions on health care reform. Single-payer, government-mandated programs have failed lower-income students. The same prescription will fail when applied to patients. Drastic changes to our health care system are needed, and Maryland should be an innovator in health care reform. Proper policies will increase access to care, improve quality of care, and lower the cost of care. Hopefully we can all agree these are worthy aims. Regrettably, the recently passed health care reform does none of these things.

The fundamental problem with our health care system lies in the way insurance is provided and in the way health services are consumed. Instead of employers buying insurance on behalf of their employees, wouldn’t it be sensible for employers to make contributions on behalf of employees to a flexible health account? And when an employee leaves a company, that account would stay with the employee, like every other form of insurance.

Regarding consumption, patients should know what services cost, and should pay for these services from their flexible health account. Necessary treatments will still be pursued, and preventive treatments offered, but patients would become more price sensitive. And yearly out-of-pocket spending would be capped, allowing insurance to actually act like insurance. Even without malpractice reform, which is sorely needed but anathema to Democrats, these simple changes would lower prices, improve access and increase quality.

Human Resources/Pensions: There is a reason that every major corporation on the planet has switched to a defined contribution program. These programs manage costs, place the control of the program in the hands of the employee, and add portability which enhances workforce mobility. Regrettably, Governor O’Malley is hesitant to adopt these common sense reforms.

In this budget, while Governor O’Malley is touting pension reform, he is proposing a modest increase in employee contributions instead of pursing structural solutions. This adjustment will only partially deal with the revenue for pensions and does not begin to address their expense. Public sector unions are dismayed by Governor O’Malley’s proposal, not because it is unfair, but because it is a step towards asking the 79,000 public sector employees to have retirement accounts and benefits comparable to the remaining 5.5 million Marylanders.

If the real goal is solvency of the pension system, the single greatest way to ensure proper funding is to lower the cost of health care. And the proposed changes I listed above would achieve exactly that.

Many have already offered criticism for Governor O’Malley’s budget, and in the coming months many more will do the same. Although they may decry Governor O’Malley’s use of accounting maneuvers and fund transfers to avoid making the necessary changes to assure long term solvency, and rightly so, as you read their criticisms, see if any real proposals are offered as an alternative. Unfortunately, all too often the complaints ring just as hollow as the budget we have just seen. Maryland deserves real leaders who offer real solutions, and who have the commitment and conviction to see them through.

Follow Brian on Facebook here and on Twitter @MurphyforMD

3 comments:

John J. Walters said...

Wow -- great post. I have never heard much from Murphy before (I guess I didn't pay him any mind before because I knew he couldn't win) but I sure will be watching him from now on.

Poetslife said...

First-rate analysis, excellent recommendations, very balanced reasoning, quick response to very complex issues. They show the kind of leadership, common sense, integrity, and real-world knowledge that is sadly lacking in Annapolis.

But that will change...soon...

Chris C said...

Interesting, although I expected to see more specifics and detailed changes that Mr. Murphy would make. I do think you made a mistake in the fourth paragraph from the end where you say everyone is moving toward "defined benefit programs." I think just the opposite is true. The movement is toward "defined contribution programs" and AWAY from "defined benefit programs" of which the teacher pension system is one.

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