Lost On The Shore

We're Number Two!

The Milken Institute recently released their 2008 State Technology and Science Index recently.  The Index ranks states in their ability to succeed in the technology-driven information age.  Maryland was ranked number two, just behind Masschusetts.  The author of the study pointed out that states that invest in their science and technology assets are creating a strong environment for building and retaining high wage jobs.  The Index gives a good idea of who is ahead in the race for scarce human capital and other resources needed for succesful high-tech industry.

I've written before about the importance of a strong educational system in creating and keeping good-paying jobs in Maryland.  A look at some of the factors used by the Milken Institute in making their rankings is informative.  In the human capital area, for example, Maryland ranked first in the percentage of adults with bachelor's degrees or better, third in the percentage of population with advanced degrees and third in the percentage of population with PhDs.  Maryland also ranked among the top three states in the number of computer scientists, database and network administrators, microbiologists, physicists and software engineers per 100,000 people.

In research funding, Maryland ranked first in per capita Federal research dollars, first in per capita academic research spending and first in per capita R&D spending on biomedical sciences, engineering, life sciences and physical sciences.

The big investment the state is making in education will help ensure that Maryland maintains its leadership in this crtical area.  The recent announcement by the governor that more than a billion dollars will be devoted to developing and supporting the state's biotech industry will also help. 

There was much concern after the tax increases that were voted through in the recent special legislative session that people and businesses would leave the state - and perhaps some will.  But the kind of enterprises that stand the best chance of succeeding in today's and tomorrow's global economy are those that are attracted by just those factors cited by the Milken Institute.  They don't locate in Maryland because of the low cost, they locate here because of the highly skilled and productive workforce we have.

If they really want low taxes there's always Mississippi...which ranks 50th out of 50 on the index.

[The painting of Archimedes was made by Domenico Fetti in 1620.  It hangs in the Alte Meister museum in Dresden]

Stimulating Someone's Economy

Well, I received my 'economic stimulus' yesterday.  I'm not sure what we'll do with it.  Probably it will go into a money market account for the time being.  The total tab for all of these economic stimulus checks (actually, wire transfers in most cases) is about $150 billion. 

Of course, the government doesn't have that kind of money.  In case you've been asleep somewhere, the US Government is running a huge deficit thanks to President Bush.  So the government is borrowing the money to pay us all the tax rebates which are supposed to stimulate the economy.  I presume the cost of this will fall on my children or grandchildren, so thanks kids!

From what I read, a lot of the money will be used for one-time purchases - that high definition TV people have been wanting, or or to pay down credit card debt - I'm sure Citicorp will appreciate that - they could use the money. 

I guess the sad thing about this is that there are so many useful things the congress and the president could have done with the $150 billion that would not only stimulate the economy but would address some of our problems too.

For example, the money could have been used for school construction - distributed to the states and then used to fix up existing schools or build desperately-needed new schools.  Or the money could have been used for highway and mass transit construction - a way to reduce the amount of gas we use either by reducing congestion or getting us out of our cars altogether.  Or to make long-deferred repairs to facilities in our national parks. 

These are just some examples, but they have something in common.  They are construction-oriented to provide jobs for the many displaced from the home construction business and they leave something of lasting value for our children, who are going to pay the bill anyway. 

Of course, all of these would take a bit longer to get started than just shoveling money at the voters, but virtually all of the jobs created would be here in the United States, not in China, Taiwan or South Korea where they make those great TVs and the Wiis. 

There was a time when our leaders, in times of economic downturn would look to solutions that would not only stimulate the economy but would provide employment for Americans and use the money to provide a lasting benefit for the future.  Look at the Tennessee Valley Authority, the Bonneville Power Authority, the Hoover Dam, the Civilian Conservation Corps and the Works Progress Administration.  What we're doing now is pretty dismal by comparison.

And it's easy to blame our leaders for this, but the problem is really with us.  We demand instant gratification.  We want everything now and don't want to pay for it.  Let our kids do that.  And President Bush has learned this perfectly.  If he had his way, he and his Republican cohorts would eliminate every tax and push government spending and borrowing to a new high.  As another famous leader said a few years ago: 'Après moi le Deluge', and he was right. 

I guess I'll just wait; the bread and circuses can't be far off.   

Gas Tax Fantasy

State Senator Andy Harris, concerned about rising gas prices, has suggested that Governor O'Malley call a special session of the General Assembly for the sole purpose of repealing the state gas tax from Memorial Day to Labor Day.

While his proposal has obvious political appeal, particularly to those short-sighted enough not to be able to see past Labor Day, there are a number of problems with the idea.

• The gasoline tax is the primary source of transportation funding in the state.  Reducing the gasoline tax will necessarily reduce the funding available for transportation improvements.  Roads in Maryland, particularly in the Baltimore/Washington area, are already heavily congested, which means a lot of gasoline is wasted waiting in traffic jams.  We need to reduce congestion, not increase it.
• Reducing the price of gasoline to the consumer will increase demand which will eventually increase the price not only of gasoline, but also of the oil from which it is derived.  Reducing or suspending the tax therefore puts more money into the hands of the oil-producing countries rather than keeping it here where it can be invested in improvements to our infrastructure.
• Suspending the tax merely postpones the inevitable.  Saving a few cents on a tank of gas does nothing to address the urgent need to find alternative sources of energy and use our existing sources more efficiently.

Andy Harris has proved he's as clueless about the economy as John McCain, who made a similar proposal on a national level which was panned by the a wide variety of economists and energy analysts for the same reasons I outline above. 

And why did Andy Harris wait until just a few days after the regular session ended to make this proposal?  Is it possible that this is just cheap political pandering?  Looks that way to me.

The Republican Budget Proposal

The Maryland House Republican Caucus released it's budget proposal yesterday.  For those who are interested, their Powerpoint presentation on the budget can be found here.  It's as interesting for what's not included in the Republican budget as for what is.

First of all, despite all the moaning from Republican circles about the penny increase in the sales tax, the Republicans don't propose to roll back that increase.  Nor do they propose to roll back the changes to the income tax structure or the increase in the automobile titling tax.  Basically, the only tax reduction they propose is an elimination of the computer services tax which was added during the special session. 

Let's look at their proposals on spending.  They propose five major reductions in spending.  First, they would accept a number of small cuts proposed by the Department of Legislative Services totalling about $189 million.  Second, they would defer a $200 million payment to the state employee retirement fund.  Third, they would cut $100 million out of transportation spending.  Fourth, they want to eliminate payments ($76 million) under the Geographical Cost of Education Index, which would compensate certain districts for the higher costs they incur in their education programs.  Fifth, they want to eliminate 900 state positions which happen to be vacant for a savings of $45 million.  Sixth, they want to pay for some projects with bonds rather than current revenue ($30 million).

Let's take a closer look at some of these.  First of all, deferring payments into the state retirement fund doesn't actually save any money.  Unless retirement benefits are reduced, any money not paid now will have to be made up later, together with the income it would have earned in the meantime.  Unless the Republicans are going to propose a reduction in retirement benefits for state employees this 'saving' will actually end up costing us more.

Cutting transportation expenditures similarly makes no sense.  I haven't talked to many people who think that the state's transportation infrastructure is even close to adequate.  Gasoline and other fuel costs are increasing dramatically and I don't think many Marylanders want to spend any more time burning gas and time in traffic jams than is absolutely necessary.  With the looming employment increases due to base realignment, traffic in many places is going to get worse, not better unless we invest now in our transportation network.  Besides, with construction costs increasing faster than the rate of inflation, we'll eventually end up spending more on transportation, not less.

The Geographical Cost of Education Index was a part of the original Thornton recommendations but has never been funded before.  It is intended to cover a part of the higher costs some school systems incur due to the higher cost of living in their areas.  In fact, almost all of this money would end up in Montgomery and Prince George's counties.  I suppose the Republicans think that they're not going to get many votes in those areas anyway, so why not cut the program.

The fourth proposal, to cut some 900 vacant positions to save about $45 million is a pet peeve of mine.  Democrats do this too, so it's not a partisan peeve.  Just because a position is temporarily vacant, doesn't mean it's not an important position or a job that needs to get done!  Proposals to 'eliminate vacant positions' or 'across the board cuts' are simply a way for legislators to avoid the hard work of determining what deserves to be funded and what deserves to be cut.  What if the temporarily vacant positions happened to include half of our bridge inspectors - would that be a good thing to cut?  I don't think so.  This kind of cut is void of substance and is intellectually dishonest.

Finally, they want to fund some current projects with bonds rather than current revenue.  How will this save any money?  The reality, of course, is that Maryland taxpayers will end up paying more because they'll have to pay the interest on the bonds as well as paying back the bonds themselves.

Now, for the record, I think the tax on computer services was poorly conceived and will have a detrimental impact on the state.  I support its repeal and would suggest that a modest increase in the alcohol tax (which hasn't changed since 1955) would offset some of the lost revenue.  I also believe that there are cuts which can be made in the state budget.  Our legislators and our governor need to work to find those cuts which will have the least impact on Marylanders without mindless proposals like 'across the board cuts' or 'eliminating vacant positions'.

What's really ironic is that, in presenting the budget, Delegate Anthony O'Donnell, the Republican leader in the House said "We owe this to future budgets and future generations." when, in reality, the Republican proposal will largely defer spending from now onto future budgets and future generations.  How he can say that is beyond me.

[note:  the photo is of a banknote issued by the Delaware Bridge Company during the 'free banking era' when laws allowed anyone to open a bank and issue currency.  Of course, many went bust and the currency became worthless.]

      

Education and Jobs

There are plenty of people in Maryland who are opposed to any taxes at all.  Andy Harris is a good example, he is proud that he has voted against any tax, even the 'flush tax' which is helping to clean up the Bay.  Apparently, it makes no difference what the taxes will pay for; if it costs money, he's against it. 

A couple of days ago, the Maryland Department of Business and Economic Development reported that exports of goods manufactured in the state were up almost 18% last year, outpacing the national growth rate.  Much of this growth came from high-tech manufactured equipment such as the MK 41 vertical missile launch system pictured above.  The system is manufactured by Lockheed-Martin at its Middle River Plant and is now used by 12 different navies.

Additional growth was provided by the radar and electronic warfare systems manufactured by Northrop Grumman Corporation at its Linthicum plant.  Nearly 9,000 Marylanders work there in highly-skilled, highly-paid jobs.

Where am I going with all this?  I want to point out that the high income levels enjoyed by Marylanders are the direct result of the highly educated and productive workforce we have.  Maryland ranks first in the country in professional and technical workers as a percentage of the workforce and in the percentage of PhDs in the workforce.  Maryland ranks first in the country in the percentage of the adult population with advanced degrees.

This high level of education attainment fuels the prosperity Maryland enjoys and attract top level corporations to Maryland despite the somewhat higher cost of doing business here.  The recent tax increases were dedicated to providing additional funding for education and transportation infrastructure in Maryland. 

Those who oppose these increases apparently think it's alright for Maryland to have just an average or worse educational system.  Children whose parents are wealthy could have their private education paid for by their parents.  Children whose parents are less than wealthy would still be able to work for Purdue, cutting up chickens.  After all, I think we still export chicken feet to China.

[Ed. Note: The photo, by the United States Navy, shows the guided missile cruiser USS Vicksburg and the guided missile destroyers USS Roosevelt, USS Carney and USS The Sullivans launching missiles during an exercise.]    

Talking about this and that...

There are a lot of things going on here in the Free State, so let's get right to it!

Presidential Politics

A new poll of Maryland voters released by the Baltimore Sun shows Obama leading Clinton by 39% to 26% with Edwards trailing far behind at 12%.  On the Republican side, McCain holds the lead with 26% followed by Huckabee at 18%, Giuliani at 16% and Romney at 12%.  Fred Thomson trailed at 33%.

The poll also indicated the softness of support for the candidates.  a full 40% of those who indicated a preference for either Obama or Clinton indicated they could change their minds while, on the Republican side, the softness was even greater with almost 70% of McCain and Huckabee supporters indicating they could change their minds.  For Giuliani and Romney the figures were 58% and 55%.

I confess I'm a little surprised at the numbers.  On the Democratic side, Maryland has for years been an old-line traditional Democratic state so I would have expected more support for Clinton and maybe Edwards.  On the other hand, Maryland does have a high percentage of African-American voters and that may sway the totals.

On the Republican side, I'm surprised to see McCain leading the pack.  With the vocal support people like Andy Harris are receiving, I would have thought that a moderate like McCain would be anathema to Maryland Republicans.  On the other hand, it might be indicative of the struggle among Maryland Republicans to decide who is a 'true Republican' and a 'true conservative.

O'Malley's March

Our Governor's popularity is marching downhill.  The same Baltimore Sun poll revealed the extent to which the results of the special session have affected the popularity of our Governor.  The poll showed that 45% of voters disapprove of the way O'Malley is handling his job vs. 35% that approve.  The fiscal package that the General Assembly approved is even less popular with 51% saying it's unfair to Marylanders vs. 33% who say it's fair. 

When asked what was the most pressing issue facing the Governor and the General Assembly, 28% pointed to high taxes with 15% pointing to education, 9% to crime and 8% to jobs.  Immigration, which seems to be such a hot election issue, was near the bottom with 2%.

Clearly the Governor is going to have to work hard over the next couple of years to show the benefits Marylanders are getting for the taxes they are paying.  Fortunately, the evidence is rolling in.

Education

A huge chunk - more than $1.2 billion - of the increase in Maryland government spending over the past few years has gone to education.  A recent report by the independent and widely-respected Editorial Projects in Education rated Maryland schools third-best in the nation.  The report, Quality Counts, is widely cosidered to be one of the most thorough evalutions of school performance; it uses more than 150 data elements in its evaluation. 

Education is particularly important in Maryland.  Despite the high cost of doing business here, corporations locate in Maryland due to the high level of educational attainment and high productivity of its workers.  This is why Maryland leads the nation in per-capita income.  If we want more high-paying jobs with companies like Medimmune, Ciena, Lockheed-Martin, Qbit, Regenerix and Human Genome Sciences, then we need to keep investing in education.  If we'd prefer to have our children working for Wal-mart, McDonalds or in a local chicken plant, then we can cut education spending and taxes right now.

Poverty

Another recent bright spot is the report by the US Census Bureau that Maryland had the lowest percentage of children under the age of 5 living in poverty of any state.  Maryland also has the second-lowest overall poverty rate.  This, of course, is partly attributable to the relatively low unemployment rate here as well as state programs.  Particularly important, I suspect is the emphasis on providing continuing support to those moving off of welfare and into employment.  It's not always an easy transition and continuing support can make a big difference.

I'll have some more tomorrow.

[Note: the illustration is of a poster for The Wolf published in 1908 by the Cincinnati Litho. Co.]

Odds and Ends

I just want to follow up on some earlier posts and take another look at the upcoming General Assembly session.  Some issues will be raised that will be difficult to deal with and might cause us to wonder who's in charge up there.

Chickens!

First, as I posted earlier, large farm operations in Maryland should have to get pollution permits just like any other large polluter.  According to this article in the Baltimore Sun, the Maryland Department of the Environment has proposed regulations that would require about 200 of the largest chicken farms in Maryland to get state pollution control permits and follow a few simple regulations for reducing pollution.

Predictably, the Delmarva Poultry Association called the proposed regulations 'unnecessary' even though the Maryland poultry industry produces about a billion tons of manure a year and is a significant polluter of the Bay.  In my view the regulations could be a bit tougher, requiring the industry to do more to stop polluted runoff from reaching the Bay, but I think they're a good first step.

Of course the poultry industry will complain loudly and lobby vigorously to block the regulations, but I think they'll lose this time.  Of course, all of this could have been avoided if they had taken responsibility for dealing with the problem at the beginning, but that's too much to ask.

Taxes!

During the recent special session, the General Assembly balked, in the face of heavy industry lobbying, at extending the sales tax to massage parlors, health clubs, real estate management companies and a few other areas.  Instead, in their wisdom they decided to place a sales tax upon many computers services - a complete surprise to Maryland's thriving IT industry.

Of course, the IT industry has now woken up to the threat, has hired their own lobbyists and raised such a stink that there is a strong likelihood that the tax will be repealed during the coming session with the Montgomery County delegation leading the way for their many IT constituents. 

Of course that raises the question of how to fill the $200 million dollar hole in the budget that the repeal will leave.  The choice is either to raise some other tax or cut spending by $200 million.  Since a chunk of the money was to be devoted to transportation spending, raising the gas tax by a couple pennies seems like a reasonable idea, but I'm not sure how many delegates want to hit people with a gas tax increase even as the price of gasoline continues to rise.

The other option is to cut spending by another $200 million (on top of the $500 million plus already mandated).  The difficulty here is that such a cut would likely come from transportation funding, which the suburban delegations very much like or in the Geographical Cost of Eduction Index, which primarily benefits.....Montgomery County.  Look for a possible surprise increase in the alcohol tax which, I believe, hasn't changed since 1955.

Same-Sex Marriage

The Maryland Court of Appeals effectively tossed the ball back to the General Assembly on this issue by ruling that the state's existing marriage law, which defines marriage as being between a man and a woman, remains valid.  Equality Maryland and other gay-rights organizations have announced they will lobby hard to pass a law to legalize same-sex marriage and they have a lot of support.

There's a lot of opposition, too.  Mike Miller, the President of the State Senate, has announced that he would oppose any such bill.  A lot of churches and religious organizations will oppose it, along with some of the generally conservative parts of Maryland. 

While I personally would like to see some kind of marriage equality act passed, I don't think it has much of chance in this session.  The question is whether a halfway approach - authorizing civil unions - would be acceptable to a majority.  I'm sure there will be lots of noise over this one.

I'll have more tomorrow or Monday.

[The photo is of a poster for the 1899 musical comedy, Hotel Topsy Turvy]

Local Pain

While a lot of attention is going to be paid in Maryland to the upcoming session of the General Assembly, the real drama, for many Marylanders, is going to be played out locally.  The slowdown in home sales, and the resultant reduction in the amount of recordation and transfer taxes, has put a real hole in the budgets of may Maryland localities.  In addition, the tax changes approved by the General Assembly in the special session together with the mandated spending reductions will have a pronounced effect on many of the counties.  Montgomery County has already announced a projected deficit of more than $400 million dollars.  Others are sure to follow suit shortly.

First let's look at what the state action has done to local revenues.  Because a significant portion of county (and Baltimore City) revenue comes from a local income tax that piggybacks onto the state tax, changes to the state income tax system affect local revenues.  There were two major changes to the state income tax system during the special session - an increase in the personal exemption amount for most taxpayers and higher tax brackets for high-income taxpayers.

According to the State Department of Legislative Services (the full analysis can be found here), these changes will result in an $82 million reduction in revenue for the counties and Baltimore City.  They will be partly offset by the 'controlling interest' legislation that closes a loophope which allowed some large commercial property transactions to escape paying transfer taxes.  This will produce additional revenue of $48 million for the localities so that the net revenue loss for the localities due to tax changes works out to $34 million.

But the loss is not evenly distributed.  Counties that have high piggback tax rates lose more to the income tax revisions and counties that have large corporate property transfer gain more from the tranfer tax reform.  Thus, two counties, Montgomery (with lots of commercial property) and Worcester (with a very low piggyback rate), end up with a net gain.  Other's are not so fortunate.  Wicomico loses about $14 per capita and Allegheny, Caroline, Carroll, Cecil and Somerset lose about $13 per capita.

Of course, the biggest blow to the localities is the mandated reduction in state aid to the counties.  The freeze in education aid will result in a reduction of almost $152 million in the coming fiscal year.  In addition, there are reduction in Open Space funding and highway user revenues.  Because the freeze on education aid is partially offset in the higher income counties by the Geographical Cost of Education funding that the Governor has committed to, the most severe effects of the funding cuts will be in the lowerincome, rural counties such as Wicomico, Allegheny, Washington and Somerset. 

The slowdown in housing sales, on the other hand, is going to have most if its impact in counties where the real estate boom was most pronounced, namely the big Western Shore counties like Montgomery, Prince Georges, Howard, Anne Arundel and Baltimore. 

So, to see where tax changes are going to have the biggest impact on you, don't just focus on Annapolis, but look to the county seats.  The counties have until about the end of May to determine if they are going to set a property tax rate above the 'constant yield' rate, which is the rate that would keep property tax revenue constant.  With assessments up again, look for most counties to propose property taxes well above the constant yield rate.  By then, of course, the General Assembly will have packed up and gone home. 

So enjoy the new year but keep a close eye on your local county officials; they'll be looking for other people's money.  That's where the tax action will be.

[The poster for Hennessy Leroyle's play 'Other People's Money' was published in 1900 by the U.S. Printing Company]

 

Waving a Fond Farewell

study

One of the doomsday predictions made by some anti-tax advocates during the recent special session of the Maryland legislature was that, in the face of new or increased taxes, many Marylanders would pick up and move to lower tax states.  Indeed, that may yet happen, but I've heard virtually nothing about that since the special session concluded.

The reality is, tax levels are not our primary concern in deciding where to live.  If they were, we'd all live down in Alabama and Mississippi which ranked, according to an MSN-Money study 50th and 48th for the combined level of taxation (federal and state).  Actually, people live in high tax states like New York, New Jersey, Connecticut and Massachusetts (and Maryland) because that's where the high-paying jobs are. 

There are other reasons too.  Alabama and Mississsippi, which have such low taxes, also rank, coincidentally, number 48 and number 50 among the states in life expectancy according to a report by PLoS Medicine.  The same two states rank 40th and 50th in personal income per capita. Not surprisingly, these states also had relatively low levels of educational attainment.

Now, are you surprised that states with lower taxes have shorter life expectancies and lower educational levels?  I'm not.  Education and health are two of the areas where spending in Maryland has increased the most in the past few years.  As I've written before, the high per capita incomes in Maryland and the high productivity of Maryland workers are directly related to the high level of educational attainment here.

So, if your anxious to get out of Maryland because of the recently passed tax increase.  I recommend Alabama and Mississippi.  I had the opportunity to drive through both fairly recently.  You'll probably take a pay cut, and your health care might not be so good, but you'll avoid that penny increase in the sales tax.  We'll all wish you a fond farewell.

[Note: the Illustration is a hand-colored engraving from a book about California published in London in 1850.]   

Good For Us!

One of the reasons the recent tax increases in Maryland were needed was the huge increase in educational spending by the state over the past several years.  Now, as I have pointed out before, I am no particular fan of the educational establishment.  Their constant insistence on more and more money while resisting accountability or performance measurement has weakened their case in my view.

But the case for education in general is a strong one.  As I've pointed out before, Maryland's number one rank in median household income is closely related to the relatively high educational attainment of Maryland residents.  In an increasingly globalized economy, the only way to maintain our high living standard will be to have a highly educated and productive workforce.

With that in mind, I'd like to take a moment to recognize the relatively high ranking of a number of Maryland schools in the recent US News ranking of the nation's high schools.  Of course, I understand that all such rankings need to be taken with a grain of salt, it's difficult to boil down the many factors that go into high school achievement into a single ranking, but the recognition is valuable, nonetheless.

Their ranking looked at 18,790 high schools in 40 states that provided data.  The ranking looked at reading and math test scores for all students on each state's high school test and then factored in the percentage of economically disadvantage students in each school to identify those that were performing better than would be expected.  The then looked at the least-advantaged students in each school and selected those schools where the least-advantaged students were performing better than average.  Finally, they looked at AP participation rates along with how well students did on AP tests.  Only schools with a sufficient number of AP students were ranked by this criteria.

Three schools in Maryland, all in Montgomery County, ranked in the top 100 using these criteria and received gold medals.  An additional ten schools, in Baltimore City, Baltimore County, Howard County and Washington County received silver medals - ranking in the top 3% of all high schools in the country. 

Finally, thirteen Maryland high schools received bronze medals.  Many of these were smaller schools in rural areas and didn't have enough AP students to be ranked in AP attainment and were thus ineligible to be judged in the top two categories.  These schoos were in Baltimore City, Garrett County, Somerset County, Washington County and Worcester County.  Only 1,086 of the 18,790 schools that were studied received bronze medals

One of the goals of the increased state education funding was to provide additional funding to lower-income counties where school spending had lagged due to lack of resources and thus give students in these schools more opportunity to succeed.  I think this report shows that the program is working.

Special congratulations to the Board of Education, the educators and the students of Somerset County here on The Eastern Shore.  Despite the lowest per capita income in the state, both of the Somerset County high schools received bronze medals.  Also congratulations to Washington County which did very well.  Here in Worcester County, I was pleased to see Snow HIll High School made the list.