Neighboring states at odds over surplus, tax increases

The rivalry between Maryland and Virginia -- and the national political aspirations of their governors -- is heating up as the neighboring states attack each other in a contest to prove fiscal solvency.

Virginia Gov. Bob McDonnell has announced a half-billion-dollar budget surplus, drawing the scorn of Maryland Democrats who question his math. At the same time, Maryland Gov. Martin O'Malley has warned of potential tax increases, which Virginia Republicans have pounced on.

"[Virginia Gov.] Bob McDonnell and Virginia Republicans tout their accomplishments but -- as often with the GOP -- the facts tell another story," Maryland Democratic Party Director David Sloan said Wednesday. "McDonnell's illusionary 'surplus' is the result of deferred bills, dismantled programs important to the middle class, budgetary obfuscation and federal stimulus spending."

Sloan released the statement after McDonnell, the chairman of the Republican Governors Association, announced a $545 million surplus for the fiscal year ending in June. Of that total, $311 million came from a revenue surplus and $234 million came from budget savings and balances, he said.

Most of the surplus, however, is going to programs that the Virginia legislature deferred payment on -- including a $620 million deferral last year from the state's severely underfunded pension system -- to help balance the budget.

Maryland also is expecting a surplus of roughly $500 million for the fiscal year that ended in June, but the state hasn't closed its books and released a final estimate.

Despite the extra cash, Gov. Martin O'Malley, chairman of the Democratic Governors Association, says the legislature may have to raise taxes to close a projected $1 billion shortfall for fiscal 2013, which starts July 1.

Virginia Republicans jumped on the potential for Maryland tax increases

on Tuesday.

"So of all those Virginia Democrats who might be considering a run for governor in 2013 ... we ask a simple question: Do you support the O'Malley model of governance, or the McDonnell model of governance?" a release from the Virginia GOP said. "Virginia taxpayers will be very interested in your answer."

Like McDonnell, O'Malley is guilty of deferring payments and shifting money between bank accounts to help balance the state budget.

O'Malley has drained nearly $700 million from the Transportation Trust Fund -- which pays for all road and rail maintenance -- since fiscal 2009 to help plug general fund deficits. He recommended another $100 million fund transfer in his fiscal 2012 budget, when the state was facing a $1.6 billion shortfall.

With the fund now nearly depleted, Maryland Democratic lawmakers are expected to fight for an increase in the state's 23.5-cent-per-gallon gasoline tax when the General Assembly convenes for a special session in October.

While Maryland lawmakers examine ways to plug their $1 billion fiscal 2013 budget gap, Virginia has yet to report its projected shortfall for its next two-year budget cycle.

Virginia state officials say they will begin to shed light on those estimates in October.

"In Maryland, we openly share that information -- we have, I guess, a higher level of fiscal transparency then Virginia does, but it seems to work against us when people [compare] the two of us," said Warren Deschenaux, director of Maryland's Department of Legislative Services.

Deschenaux said he suspects that Virginia officials are discussing their projected shortfall internally, but are keeping it under wraps for the sake of appearances. Virginia Del. R. Steven Landes, R-Waynesboro, said there is no such internal communication.

"We are still waiting to see what the impact will be from federal cuts" and how the economy fares over the next couple of months, said Landes, a member of the Governor's Advisory Council on Revenue Estimates. He said it's likely the state won't know its projected shortfall until December, after the next round of federal budget cuts is delivered to President Obama.