Short-Term Challenges Require Long-Term Vision

By: Peter Franchot, J.D.

Peter Franchot, J.D., is the Maryland state comptroller.

Earlier this week, The Conference Board reported that consumer confidence has reached a 16-year low as a result of spiraling oil prices, concerns over job security and the specter of inflation. This latest news comes amid continued fallout from the collapse of the sub-prime lending industry, which has lifted U.S. home foreclosures to an all-time high while undermining the stability of the stock market and virtually every sector of our nation’s economy. This latest confirmation of consumer anxiety comes as no surprise to families that are struggling to pay the bills and keep a roof over their heads, while the price of everything from a gallon of gas to a gallon of milk is on the rise.

In March, the Maryland Board of Revenue Estimates, which I chair, reduced our state’s revenue projections by $330 million over the next 16 months. This confirmed that while Maryland’s economy remains strong—due to our proximity to the federal government and the presence of a thriving high-tech economy—we are not immune to national economic trends. It also served as a sobering reminder that the state of Maryland continues to face a structural budget deficit, even after the enactment of a record tax increase last November.

It is in this climate of fiscal and economic uncertainty that Marylanders will go to the ballot box this November and vote whether or not to amend our state’s constitution by legalizing 15,000 slot machines at five locations throughout Maryland. As comptroller and Maryland’s chief fiscal officer, I am working in active opposition to this constitutional amendment. I can think of nothing more irresponsible than tying our state’s economic future to the national gambling industry’s empty promises of easy money. Though the economic forecast is likely to get worse before it gets better, these challenges are temporary. Slots and their negative fiscal impact, however, are forever.

I believe we can and should do better—both now and over the long term. Even supporters concede that slots would not generate any significant revenue until 2012 at the earliest. In an effort to address our fiscal challenges immediately, I have introduced a Tax Fairness Initiative that will bring in an estimated $200 million as it is phased in over the next four years. Once the new technology and personnel are fully in place, it will generate up to $100 million per year. This is not adding or raising taxes—we are simply working aggressively to enforce the tax laws that are already on the books.

In addition, I have instituted numerous partnerships with the U.S. Internal Revenue Service to help my state collect what it is owed. Last July, we were proud to be the first state in the nation to partner with the IRS in a “federal vendor offset” program. Originally estimated to bring in a little over $10 million for Maryland in the first year, it will in fact help us collect in excess of $25 million in the first year alone. In fact, it was for innovative programs like this that the AGA honored Maryland and my office with the 2007 William Snodgrass Award.

In the long term, the solution for fiscal health and stability is an economic development strategy that harnesses our existing strengths—particularly in the life sciences—and helps grow and expand our tax base. Instead of resorting to the empty gimmick of slots, we must get back to the basics of growing our economy the old fashioned way by investing in innovation, building our educated work force and promoting industries that are environmentally sustainable and conducive to small business entrepreneurship.

As other states like North Carolina, Michigan and California significantly increase their investments in the life sciences, this is not the time to be distracted by the issue of expanding gambling. In addition to their enormous and well-documented social costs, gambling is a notoriously undependable source of revenue. While 15,000 slot machines may look good today, what happens when neighboring states add machines, gaming tables or casinos into the mix? I’m afraid that it would be the beginning of a corrosive cycle of budgetary uncertainty and further tax increases.

The collapse of the sub-prime lending industry has taught us all that there is no such thing as an easy fix, that there are no shortcuts to prosperity and that if something sounds too good to be true, it usually is. The immediate fiscal challenges we face today are an opportunity to reinforce our immediate commitment to tax fairness and our long-term investment in the knowledge-based economy. It is an opportunity that shouldn’t be squandered by a shortsighted and destructive obsession with slot machines. I welcome your thoughts and comments, as this is a national issue.'

TOMORROW: Patricia McGinnis, the President and CEO of the Council for Excellence in Government on "The Upcoming Presidential Transition and the Government Retirement Wave"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Comments

[M Martin]

Thanks for the read, I only just stumbled across your blog, and this post made my day.

[Peter Franchot]

Great post Tom. Your point that it takes courage to not only speak out, but also to act on complex issues is true.

I think in recent years there have been public servants who have shown the courage to stand up and do the right thing in tough fiscal times, such as former Governor Mark Warner in Virginia.

I have advocated that we in Maryland follow his example when Virginia was facing a structural deficit by involving members of the business and accounting communities for their input as to how best balance the budget.

Doing the proper homework and analysis is the key for successful accounting practices. We as public servants should uphold those same values when it comes to getting our fiscal house in order.

[Tom S]

The issue of gambling aside, I think the key point is captured in the title of your post. It is incredibly difficult to get government to address longer term issues.

My state has a long-term fiscal imbalance because state revenues produced from normal economic growth do not keep pace with the fiscal demands. Hard choices must be made during the budget process. This is not unique to our state or this time.

It takes political courage to speak out and it is difficult for most people to fully appreciate the issues because they are so complex.

Two factors contibute to this. First, the area of true discretion and flexibility is relatively small compared to the total budget, often no more than $100 - 200 million out of $22 billion.

In a similar fashion our general revenue fund in recent years has ended the year with seemingly large balances, e.g., over $300 million last year. Why can't we spend that? Well, you can as one-time but not to support an ongoing program.

There is no solution other than to elect and appoint officials who will speak truthfully.

Except for the occasional true independent voice like David Walker was as Comptroller General there are few people on the "non-polical" side who can speak truth to power.

Most of us in our profession understand the issue and know what the truth is but may not have the standing to speak it. We can and should do our work with diligence and integrity. At a minimum, we should do what is possible within the constraints of our responsibility and authority.

[Peter Franchot]

Thank you for your comment, Paige. I agree with your assertion that it is a false choice to say that we need to have slots or raise taxes. This debate; however, is bigger than one individual, as it speaks to the future direction of our state and the greater transition to the knowledge-based economy. Will we settle for a short-term gimmick or invest in a long-term strategy that grows our economy the old-fashioned way through rewarding innovation and strengthening our educated workforce?

[Paige Gardner]

I completely agree with Comptroller Franchot. Last time I looked, states like New Jersey with all that gambling revenue had incredibly high real estate taxes and slots never solved Deleware or West Virginia's budget problems or made their schools great. I have a huge problem with Governor O'Malley pushing something that only a year or so ago he said was "morally bankrupt." This shows what kind of a "leader" and person he really is. Go Franchot!!