Message from the Chairman:

O'Malley's Budget -It Will End in Tears

When my children were much younger, my wife and I had an expression for when their play together was becoming too giddy and boisterous: "It will end in tears." As adults we could see what was coming. And sure enough, it was just a matter of time before things got out of control, the laughter stopped and someone was in tears.

The same can be said for the prospects of the Obama Stimulus Package's impact on Maryland's budget. "It is going to end in tears."

This week is the first anniversary of the Obama-Reid-Pelosi Stimulus package and a debate has broken over whether how it "worked." Measured against the promises made at the time it was passed, it clearly has fallen short:

· Obama Promised Unemployment Would Not Rise Above 8 Percent.

o Results: Unemployment Moved above 10 Percent.

· Obama Promised His Stimulus Would Create 3.5 Million Jobs By End Of 2010.

o Results: Since Obama Signed Stimulus Last February, America Has Lost 2.8 Million Jobs.

· Obama Promised the Stimulus Would Have "Responsibility and Accountability."

o Results: According to the Stimulus website $6.4 billion went to 440 nonexistent Congressional districts.

The public is clearly not being fooled by this debate. According to a CBS/NYT poll only 6% of Americans think that Obama's Stimulus created jobs. That is lower than the 7% who believed Elvis Presley was still alive in another CBS poll. But then Americans are by nature a very optimistic people.

The problem with the Stimulus is not just limited failed job creation. State and local government have deferred hard choices by relying on Stimulus money. Indeed many states, including Maryland, have increased spending because of the requirements built into receiving the Federal money.

In the current budget year, Federal Stimulus money is being used to pay for $2 billion in state and local Maryland spending. Beginning with the budget that starts this coming June 2010, that money declines. By the next year, after the 2010 election, the Stimulus money will be gone.

To put Governor O'Malley's reliance on Stimulus in prospective, it provides more of the revenue's in the current year's budget than all of the tax increases passed in 2007.

Compare 2011 with 2007. At the conclusion of Bob Ehrlich's last budget year, the state had a$1.4 billion budget reserve, over 10% of state revenues. However rather than respond to warnings of a weakening economy, the Governor continued his spending increases, which led to the largest tax increase in the state's history in the fall of 2007. By any objective standard, Maryland's budget situation is now in far worse shape today than in 2007.

Now consider the choices we will face next year. Our budget reserve and trust funds have been substantially drawn down compared with 2007, the Federal stimulus money will be no longer available and the state will be stuck with the new spending commitments it took on in order to qualify for some of the Stimulus money.

The only reason taxes increases, massive taxes increases, have not been proposed this year is that we are in an election year. We should have no doubts what Governor O'Malley, if reelected, will have in store for us 2011.

Does it have to end in tears? I hope not. But in order to avoid them, our state needs responsible fiscal leadership. Sen. Edward Reilly has offered a plan, SB 840, the Budget Reduction Act. (See the following article.) He provides an example of the leadership the state needs. As Republicans, though, we need to see that he has more like minded colleagues in Annapolis.

Mark Uncapher

Montgomery County Republican Chairman

Senator Reilly Offers Plan to Attack Maryland's Budget Deficit

In only his first legislative session, Senator Edward R. Reilly (R-Anne Arundel County-District 33) is taking on the budget chaos in Annapolis with a proposal to address ongoing state spending to reduce out-year deficits. Senator Reilly was appointed last year to fill the vacancy created by the retirement of Sen Janet Greenip.

Using his seven years of experience in county government, Reilly has introduced Senate Bill 840 - Budget Reduction Act. Senator Reilly stated, "of all the issues that face our State, none is more important than addressing the state's troubling budget picture. For this reason, I am making this my primary 2010 legislative priority."

Senator Reilly further explained, "it is imperative that the state budget reflects the reality of the current financial climate. This means that, unlike the administration's proposals which depend heavily on the limited and uncertain Federal 'stimulus' money, Senator Reilly addresses the budget issues from the expenditure side.

This is because all revenue projections must be viewed skeptically at best and with trepidation at worse. Because we cannot control revenue streams, and because Maryland's citizens and businesses cannot afford any more tax/fee increases, the only prudent approach is to cut expenses. Maryland must focus on limiting funding to government's core functions. All other state government expenditures must be 'on the table' and evaluated for reductions."

With these goals in mind, Senator Reilly has submitted a bill that addresses budget cuts across multiple state departments and jurisdictions. He believes that his budget proposals reflect an approach that adjusts the state's current spending to reflect the difficult economic realities of our time.

Featherbedding in Montgomery County Public Schools

[Recently], Superintendent Jerry Weast presented a $2.2 billion budget to the school board, noting that this proposed budget represents only a 1 percent increase over last year's budget. School board President Pat O'Neill is quoted as saying, "This budget is bare bones." Evidently, some folks haven't heard there's a recession going on.

Weast's laments remind me of the T-shirt that says, "The one with the most toys when he dies - wins!"

Would it surprise you to know that (according to the school system's own Web site) from 2004 to 2008 that enrollment in Montgomery County Schools actually dropped by 1,431 students? That's a reduction of students of 1 percent.

During this four-year reduction in students, one would expect a similar reduction in staffing and budgeting - right? But no, as we taught 1,431 fewer students, Weast and his gang added 490 professionals and 433 support personnel along with increasing their "austere" budget by more than a quarter of billion dollars.

In my book, adding [more than 900] professional and support staff while servicing 1,431 fewer students pretty much fits the definition of "featherbedding."

Yeah, but at least those additional staff allowed us to do a much better job, right? Let's see, in 2004, Montgomery County Public Schools had a graduation rate of 92.5 percent. In 2008, with 1,431 fewer students, 2,891 fewer students graduated. (Compare that to Fairfax County, where they have 173,537 students, a $2.2 billion budget, and graduate 91.2 percent.) Am I the only one who is amazed that given $2.2 billion almost 10 percent of our students aren't graduating?

At some point, we have to make Weast and our school system accountable to do the job they are being paid to do in a responsible fashion. The taxpayers of this county have buckled down and produced more with less; it's time for the school system and the rest of our public employees to do the same.

Mark Scott, Cabin John

Link to Letter in Gazette

1. Tear Down Self-Imposed Obstacles to Economic Growth:

The threat of increased taxes, new government regulation, and costly government mandates - all of which are currently pending before Congress and various regulatory bodies - are a significant threat to any employer who is trying to decide whether they can afford to expand. As the CEO of a steelmaker recently told the Wall Street Journal "Companies large and small are saying, 'I am not going to do anything until these things - health care, climate legislation - go away or are resolved.'"

Therefore Congress and the Administration should: Halt Any Proposed Rule or Regulation Expected to Have an Economic Cost, Result in Job Loss, or Have a Disparate Impact on Small Businesses:

Since taking office, the Administration has had under consideration over 100 regulations that are deemed economically significant, meaning they have an impact on the economy in excess of $100 million. Many of these rules will directly impact small businesses.

The President should issue an immediate Executive Order halting any proposed regulations expected to impose any net costs on the economy in either the near or long-term or that negatively impact small businesses or result in a net loss of jobs. Such rules should be rewritten to fully mitigate any negative economic impact.

Therefore Congress and the Administration should: Eliminate Job Killing Federal Tax Increases:

While there is a philosophical difference between the two parties when it comes to taxes, we believe we should find common ground on the premise that the government should at a minimum never raise taxes during periods of high unemployment.

While Republicans will continue to fight both new initiatives that are premised on tax increases and automatic tax increases that are embedded in current law, we urge a bipartisan commitment to blocking such tax increases at least until unemployment is below 5% again.

2. Restore Confidence in America's Economic Future:

Record deficits and debts and the seeming lack of commitment on the part of policymakers to restrain federal spending has caused many to conclude that the federal government is likely to address its deficit problems by either raising taxes or inflating the dollar. Even the threat of such actions in the future is a drag on the current economy.

Therefore Congress and the Administration should: Demonstrate a Commitment to Lowering the Deficit Now Without Raising Taxes By Freezing Domestic Discretionary Spending at Last Year's Level.

In addition to the $787 billion "stimulus" bill, Congressional Democrats are pushing through appropriations bills that will increase domestic discretionary spending by 12% in one year.

A freeze in domestic discretionary spending would immediately save $53 billion and more importantly demonstrate an immediate commitment to fiscal restraint.

3. Assist Community Banks and Small Businesses:

The downturn in the commercial real estate market is impacting not just businesses that must roll over their loans, but also community and regional banks that have a significant exposure in commercial real estate. Because commercial real estate loans are generally written for a five year term and many are coming to term over the next several years, approximately $400 billion in loans must be refinanced each year for the next several years. Many economists have cited the problems in the commercial real estate market as major hindrance to economic recovery.

Therefore Congress and the Administration should: Assist Community Banks and Small Businesses with the Downturn in the Commercial Real Estate Market:

The after-tax costs of properties could be lowered by reducing the depreciation schedule for property from 39½ years to 20 years or less.

Bank regulators should act to improve transparency and ensure flexibility in underwriting and appraisal standards so as to ensure that financing is available for those properties with the promise of generating revenue. At a minimum this should include requiring standardized reporting on the number of performing loans per institution that are not renewed. This would ensure that regulators on the ground are living up to the commitments of regulators in Washington not to deny renewal of loans simply because of a fall in the value of the collateral.

4. Reform the Unemployment System to Help the Jobless and Small Businesses Alike:

The current Federal-State unemployment insurance program is ill-equipped to assist individuals in the current economic downturn, especially those who may not be able to find employment in their former field. Furthermore, as a result of declining / negative balances in unemployment trust funds, most states will increase unemployment payroll taxes on employers, averaging almost $250 per worker per year through 2012. This will directly increase costs of employment for businesses of all sizes.

Therefore Congress and the Administration should: Reform the Unemployment System to Help Those Out of Work Find Jobs and Lower Federal Payroll Taxes to Assist in Hiring:

Federal unemployment insurance recipients who are most likely to exhaust benefits should be expected to engage in education, training, or enhanced job search as a condition of eligibility. This proposal would expand on the current successful Reemployment and Eligibility Assessment program operated by some States.

The government should require states to adopt a program like "Georgia Works" as a condition of accessing Unemployment Insurance Modernization funds. Under this successful program unemployment insurance recipients are placed in real part time jobs with real employers, with the employer deciding whether to hire them at the end of a 6-week trial period. Their pay during the period is their unemployment benefit, along with a State-provided stipend for job-related transportation and child care expenses. This has resulted in faster returns to work, less unemployment payments, and thus lower State unemployment taxes.

The Federal government could help offset part of the cost of state payroll tax increases by immediately suspending the Federal unemployment tax, saving employers $56 per worker per year. The "cost" of this tax suspension is $7 billion a year and could be offset through reduction in improper government payments, which according to the Administration totaled $98 billion last year - an increase of $26 billion over the previous year.

5 Reduce Regulatory and Tax Barriers to Domestic Job Creation:

Federal regulations and tax law often make it easier for large companies to create jobs overseas than to create jobs here at home. Efforts should be taken to ensure the most favorable environment possible for domestic job creation.

Therefore Congress and the Administration should: Remove Unnecessary Barriers to Domestic Energy Production:

Increased domestic energy production from all sources (including oil, natural gas, oil shale, nuclear, and renewable) has the potential to lower energy costs, reduce our reliance on foreign oil, and create new jobs. Yet regulatory barriers often prevent or unnecessarily delay environmentally sound domestic energy production.

The Administration and Congress should act to remove the regulatory barriers to energy production and streamline the existing permitting process.

Therefore Congress and the Administration should: Provide an Incentive for Companies to Repatriate Earnings Back to the United States:

Currently any profits a U.S. based company earns abroad are taxed at the 35% U.S. corporate tax rate when those earnings are brought into the U.S. As a result companies often choose to reinvest their earnings in subsidiaries overseas rather than at home.

In 2004, Congress allowed companies a limited time to repatriate foreign profits and pay a reduced tax rate of 5.25%. The policy resulted in more than $350 billion dollars of profits being returned to the U.S. and a windfall to the Treasury of about $18 billion in tax revenue.

Providing another limited window for repatriation of foreign earnings would help U.S. companies retain domestic workers and weather the current economic downturn. This would actually increase revenues in the short-term and any estimated long-term losses can be offset through reductions in improper payments.

6. Expand U.S. Export Jobs:

Recently President Obama said that increasing U.S. exports by just 1% would create over 250,000 jobs. The independent International Trade Commission has estimated that implementation of the three pending free trade agreements would increase U.S. exports by more than 1%. By failing to act on just the three pending agreements the Congress and the President are preventing the creation of hundreds of thousands of good-paying jobs.

Therefore: President Obama should submit - and the Congress should quickly approve - these job-creating trade agreements."