From the Field: It's Always Something: Maryland's Path through the “Great Recession”

Abstract

Like most states, Maryland experienced a significant revenue decline following the “Great Recession” of 2008. The State balanced its annual budgets using a combination of spending cuts, new revenues, use of general fund balance and reserves, modifications to State–local government revenue and spending relationships, and transfers from various dedicated special fund balances. During this period, states also received generous federal support via the American Recovery and Reinvestment Act of 2009. This case study differs in two ways from previous analyses of state budget balancing actions during times of fiscal distress. First, it demonstrates how elected officials established and implemented action to preserve spending priorities; chiefly relating to the social safety net and primary/secondary education. Secondly, it documents the combination of budget balancing actions adopted over a multi‐year period and shows the extent to which each type of action was relied upon. Future study can build upon this research, to show to what extent other states relied upon similar or divergent measures when balancing their budgets in post‐recessionary periods. Along with other states, Maryland was substantially affected by the so called “Great Recession.” But unlike many other places, Maryland did not substantially curtail employment or services. In particular, Maryland resisted substantial reductions in spending on health and education even after federal American Recovery and Reinvestment Act of 2009 support was exhausted, while maintaining a 5 percent balance in its Rainy Day Fund. This entailed a combination of spending restraint, balance transfers, rededication of revenues, health provider taxes, gambling, and higher taxes. This paper describes the actions taken each year, and illustrates how spending priorities were protected to the extent possible.