Wednesday, January 15, 2014

Maryland's Gloomy Fiscal Outlook

Maryland ranks near the bottom of the nation in overall fiscal condition, according to a new report.  In State Fiscal Condition: Ranking the 50 States, researcher Sarah Arnett of the Mercatus Center at George Mason University, ranks the states using several different fiscal metrics. 

Here’s how Maryland fared.

Cash solvency: 41
Budget Solvency: 43
Long-run solvency: 43
Service-level solvency: 32

The report ranked Maryland 44th overall.

According to Arnett

Each type of solvency measures a different dimension of fiscal condition.  Cash solvency concerns a government’s liquidity and its ability to pay its bills on time. Cash solvency has a short time frame—30 to 60 days—and reflects the liquidity of a state government and the effectiveness of its cash management system.  Budget solvency concerns a government’s ability to meet the current year spending obligations without causing a deficit This type of solvency has a mid-range time frame, often one fiscal year, and may reflect the fiscal institutions within a state. For example, states with stricter balanced budget requirements may be more adept at balancing their budgets and achieving better budget solvency.  Long-run solvency is a government’s ability to pay for all its costs, including those that may occur only every few years or many years into the future.  While cash and budget solvency look at short-term financial management, long-run solvency looks at a government’s management of longer-term obligations, such as meeting pension obligations to current and future retirees.  Service-level solvency is a government’s ability to provide and pay for the level and quality of services required to meet a community’s general health and welfare needs. Service-level solvency is determined by a number of factors, both current and future. For example, the size of a state’s revenue base and its political leaders’ willingness to collect revenues can impact service-level solvency.  Related to the level and quality of services, a state’s current and future decisions about which basic services to provide will impact service-level solvency. Similarly to long-run solvency, service-level solvency depends on both current and future decisions and fiscal environments.




Under Governor Martin O’Malley, who is scheduled to release his FY 2015 budget later today, Maryland has increasingly relied on debt financing to fund spending increases.  According to the Department of Legislative Services, the O’Malley administration has issued $1.4 billion in general obligation bonds to replace cash it transferred from special accounts to the general fund.  State debt payments are expected to balloon to $557 million in 2019.

Maryland’s unfunded pension and other retiree benefits are another troubling issue.  According to State Budget Solutions, Maryland is facing a $77 billion in unfunded liabilities.


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