Fiscal Briefing: Structural deficit down, budget provides some "fiscal responsability"

The legislative staff's annual Fiscal Briefing usually contrasts with the Governor's press conference on the budget.

The Governor emphasizes broad themes themes and trumpets a few initiatives. It's more of a sales pitch than an information session.

The legislative staff provides analysis and criticism. It usually identifies weaknesses in the Governor's budget proposal. Often, it provides the basis for the legislature's strategy in amending the Governor's budget.

Dep't of Legislative Services

This year's legislative fiscal briefing was unusually positive about the Governor's budget proposal. You can find the 80-page briefing document here. Among the features that legislative staffers seemed to like:

• The budget"nearly resolves" Maryland's longstanding "structural deficit," cutting it from over $1.7 billion five years ago to only $155 million. (The "structural deficit" is the amount by which ongoing revenues received during the year fall short of ongoing expenditures).
• The budget leaves a cash balance of over $1.2 billion - including the $236 million year-end balance in the general fund plus the $921-year-end balance on the "Rainy Day Fund." The legislature's chief policy analyst Warren Deschenaux said that this large balance is "desirable" given uncertainties about federal funding as Congress continues to wrangle over the federal budget.
• The budget includes several modest initiatives, such as $25 million for school security improvements and $1.8 million for school breakfasts. We'll examine some of these in future blog posts.
• The budget "fully funds" existing formulas for a range of local and nonprofit functions, like schools, police departments, community college, and arts organizations. (In most cases, though, the legislature has adjusted these formulas since the onset of the Great recession, so "full funding" now may be less than it would have been back in 2007.)
•  The budget includes $94 million to reconcile past-year charges against federal grants of other special funds in which turned out to be overestimates. Deschenaux commented that he has "never seen so much fiscal responsibility in one lump."

All this  is made possible by renewed revenue growth (though its still rather slow growth by historic standards), a pause in the increase in state funds for Medicaid (thanks to stabilizing caseloads and federal funds from the Affordable Care Act), and some budgetary maneuvering.

There are still some "gimmicky" moves proposed in this budget. The budget uses nearly $90 million in state transfer tax revenue to support the budget. This funding would ordinarily be dedicated to acquiring open space and environmental land. The governor proposes to issue bonds to fund the open space acquisition for the next five years. Also, payments to a couple of reserve funds totaling $100 million would be deferred or not made at all. One related to local government income tax would be eliminated. Another one, related to the Inter-County Connector road project, would be delayed until 2020. These actions would account for most of the year-end general fund balance.

There are some cuts in this budget, and well be looking at them as the legislature begins holding budget hearings in the coming days and weeks.

Overall, however, legislative staff gave the Governor a positive review on his budget proposal. We are sure that the legislature will find ways to improve the budget. This year, it may be more like fine tuning than like a complete make-over.