That's Not What a Surplus Is For

Franchot's Handout Gambit Reeks of Politics

Maryland somehow miraculously closed the 2020 Fiscal Year with a $585.8 million surplus. And it did not take one prominent Democrat very long to announce a plan to give that money away:

Comptroller Peter V.R. Franchot (D) wants the state to direct a general fund surplus to small businesses coping with the COVID-19 pandemic…..

….Citing the state’s existing $1.2 billion rainy day fund, Franchot said he would urge the governor and General Assembly to devote the entire general fund balance to a stimulus and rescue program for small businesses.

“These small businesses will simply not survive this economic devastation in the absence of state support ― and Maryland would be in danger of losing thousands of jobs, direct and indirect economic benefits, and community investments that they generate,” Franchot said in a written statement.

I appreciate the Comptroller’s interest in keeping small businesses afloat. Unfortunately, there are a few flaws with Franchot’s plan.

While the $585.8 million surplus is a nice surprise, it was still $102 million less than revenue projections expected for FY 2020. That’s a big flashing warning sign for future economic outlooks. The economic outlook is unsettled for both the state and the nation. Between the uncertainty of the Presidential election and the uncertainty of how long it will take the get back to normal, there is no reason to suspect that revenue estimates will continue to fail to meet projections in the immediate future. And that’s something even Franchot acknowledges.

Franchot acknowledges the good budget news is only temporary.

The state budget is still facing significant projected shortfalls, both for the current year and, at the very least, in the fiscal 2022 budget, which Gov. Larry Hogan will propose in January.

Fiscal leaders are still looking at the potential for hundreds of millions in additional cuts and have not ruled out furloughs and layoffs. State Budget Secretary David Brinkley told lawmakers last month that Maryland has managed to maintain its rainy day fund of nearly $1.2 billion in anticipation of needing it in the future to offset budget shortfalls.

It’s fiscally irresponsible to spend money by handing it out to small businesses in times of economic uncertainty and during a time in which state government is poised to not be able to meet its obligations. Considering that legislative Democrats appear to have no desire to rein in state spending or to reduce legislatively mandated spending, recklessly spending any surplus like this is not smart governing.

How out there is Franchot’s proposal? Even The Baltimore Sun Editorial Board is against it.

It’s also not the role of government. Too many people think that the role of government is to provide fiscal stimulus. This isn’t just an issue with left-wing Democrats like Peter Franchot; Republicans, both locally and in Washington, want the same thing in some way, shape, or form. Governor Larry Hogan, for example, has asked for a federal bailout of state governments. Both Republicans and Democrats in Congress want to pass more and more in federal stimulus. The federal government can do that (to a point) because the federal government can engage in deficit spending (notwithstanding the horrific deficit that this Congress and President Donald Trump has already piled on the existing National Debt). But governments should not be in the business of giving direct payments to any individual person or private business in this manner.

But what this really boils down to is the same thing that everything Peter Franchot boils down to: politics. This is a political stunt by Franchot to try to curry favor with small business owners. These are some of the same business owners that have embraced Franchot due to his perceived fiscally conservative views. As we all know, Franchot is not a conservative under any metric and this proposal confirms it. There is no fiscally conservative justification for handing out this surplus money in the way Franchot proposes, especially considering the deficits, both real and structural, that are already looming. But as with everything Franchot does, you need to look at this proposal through the lens of Franchot’s 2022 gubernatorial campaign.

Regardless of the politics, a surplus is not for redistribution as a handout. Franchot should know better and his policy should be discarded as the political stunt it is.