The Sequesters are Coming

Maryland should keep its budget intact, and use rainy day reserves for temporary shortfalls.

Tomorrow is D-Day for sequestration unless Congress acts to prevent it in the coming hours.

Sequestration—that scary moment when automatic, across-the-board federal budget cuts begin. Every state will be affected, but Maryland may be worse off than many.  

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While the effect of these cuts on Maryland will be very substantial, they will not all be immediate. Maryland’s state and local budgets will be affected in three ways:

1.  There will be a loss of direct federal funding for state and local programs. Some of the larger programs, like Supplemental Nutrition Assistance (“Food Stamps”) and Medicaid are excluded from the cuts. But lots of other programs in education, health care, job training, public safety, and many other areas will be cut. According to White House estimates, Maryland schools will lose over $24 million in federal funds. 800 kids in Maryland will lose Head Start program seats. Funding for child vaccinations will drop by $140,000, reaching 2,050 fewer children. Senior meal programs would lose $877,000. The Department of Legislative Services estimated the total at $117 million for the state over two fiscal years, with additional cuts hitting local governments.
2. Cuts to federal jobs and purchases will suck income out of the state’s economy. The White House estimates that civilians working for the Defense Department in Maryland will lose $354 million as they are furloughed one day per week. Other cuts to military operations will exceed $100 million. Cuts would hit other federal agencies located in Maryland: the National Institutes of Health, Social Security Administration, the National Institute of Standards and Technology, National Archives, Census Bureau, and many others. Employees of these agencies—and of Maryland businesses that sell supplies and services to them—could  all lose income.
3. These impacts will affect the state’s overall economy. As federal employees, vendors, and contractors lose income, they will have less money to spend on groceries, entertainment, furniture, and everything else. The cuts will have a “de-multiplier” effect on Maryland’s economy, reducing job and income growth in all sectors. That will cut Maryland’s yield from income and sales taxes, which combined make up the largest source of state revenue.

The net effect could be the loss of hundreds of millions of dollars, just when Maryland’s budget is finally approaching stability.

What should the state do? To repeat a popular phrase, “Keep Calm and Carry On.”

Our national leaders have fallen into a bad habit of brinkmanship. Since each side feels its leverage increases as a crisis gets closer, they wait until a deadline (or past a deadline) before they negotiate seriously. These cuts are serious and should not be acceptable. But their effect won’t be fully apparent right away. With some pressure from ordinary people and businesses, it is likely that Congress can eventually reach some sort of deal, and before the next scheduled crisis on March 27, when the current federal appropriations run out.There will be yet another scheduled crisis set for May 18, when the federal debt limit expires again.  All of these events will occur before the new state fiscal year begins July 1st. We can hope that the national financial and economic pictures are clearer by then.

Maryland has ways to address shortfalls. The Governor's proposed budget prudently leaves cash balances of more than $1.1 billion in Rainy Day Fund and general fund reserves. Part of these can be used to address federal impacts. 

The Governor and the Board of Public works have the ability to reduce appropriations when the legislature is not in session. 

Finally, the next session of the legislature will meet when the state is half-way through this budget. Since Annapolis has shown the ability to take responsible actions on financial matters, any adjustments that require changes in law can be made then.

However, Maryland should not respond to federal budget cuts with state budget cuts. Eliminating more services, more jobs, and more economic activity would make a bad situation worse.

What is critical now is for Maryland’s government, business, and nonprofit leaders and regular citizens to help convince Congress to solve the nation’s financial problems in a calm way and without wrecking the economy or harming vulnerable families.

The Week Ahead

Today's Week Ahead is abbreviated as we're taking part in Maryland Nonprofits' Annual Conference today. Last week, MBTPI blogged about film credits and we hosted a guest blog about school breakfast from Maryland Hunger Solutions. MBTPI also testified on several bills that would cut the corporate tax rate, and on transportation financing (all testimony).

For the week of February 25th to March 1st:

• Budget hearings continue. Highlights include the Department of Health and Mental Hygiene, the Maryland State Department of Education, and the Department of Human Resources. More information can be found on the budget hearing calendar.
• Hearings on other bills also continue. This week is going to be a busy one in Annapolis, with hearings on paid sick leave, the minimum wage, and gun control. More information can be found on the committee calendar and floor agendas (click on a date to get more detailed information).
• Homelessness and Reentry Lobby Day is Thursday, February 28th.
• Bureau of Labor Statistics will release the state-level 2012 employment averages on Friday, March 1st.
• And last, but definitely not least, unless Congress acts by the end of the week, sequestration cuts go into effect Friday, March 1st. The White House released state-by-state summaries of sequestration's impact yesterday. The Washington Post created an interactive page; they also provide a scan of the White House report so you can read all about the effect of sequestration on Maryland.

Serving MD’s Children: Support Meals for Achievement

Today we have another guest blog, this time from Lisa Klingenmeier at Maryland Hunger Solutions.

Even as the national economy slowly improves, many Maryland families still struggle to make ends meet. Maryland has the highest median household income in the country, yet statewide 14.8 percent of households had difficulty affording enough food to feed their family during the first 6 months of 2012. From December of 2011 to December of 2012, every county in Maryland had an increase in enrollment in the Food Supplement Program (known nationally as the Supplemental Nutrition Assistance Program (SNAP) and formerly known as Food Stamps). At the same time, the USDA estimates that food costs will rise between 3 and 4 percent in 2013.  Reliable sources of healthy meals, through programs like the School Breakfast Program, are more important than ever.

Photo taken at Meade Middle School, an MMFA School

Maryland Meals for Achievement (MMFA) allows participating schools to provide breakfast free to all students in the classroom, thereby increasing breakfast participation, while reducing stigma and other barriers to participation.  The program addresses the hunger and nutritional needs of students in schools where at least 40 percent of students are eligible for free and reduced-price meals. The benefits of MMFA are clear – higher school breakfast participation has a positive impact on the educational performance, health, and behavior of Maryland’s children.

Unfortunately, during the 2012-2013 school year, only 271 schools of the 813 schools that are eligible for MMFA are actually participating because of budget limitations. As more families are struggling to make ends meet and put adequate food on their table, it is essential that eligible schools receive the resources they need to provide free school breakfast to all of their students through the MMFA program.

In his FY2014 budget proposal, Governor Martin O’Malley included an additional $1.8 million dollars in the Maryland State Department of Education (MSDE) – Aid to Education budget for MMFA, which would provide in-classroom breakfast to 57,000 more vulnerable children.

Maryland Meals for Achievement is only part of a statewide investment by community partners to help combat childhood hunger, but it is an important, proven, and cost-effective one.  As many Maryland families continue to struggle with food insecurity, Maryland Hunger Solutions and MBTPI strongly support MSDE’s Aid to Education budget as set by the Administration, including the additional funding for the Maryland Meals for Achievement program.

Film tax credits are ineffective

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Legislators are considering a bill that would more than triple the state's film production tax credit cap to $25 million in fiscal year 2014. The bill would also extend authorization of credits up to the current level of $7.5 million through fiscal year 2016. Productions have to spend at least half a million dollars in Maryland to qualify. The credit was created in 2011.

Maryland, and Baltimore in particular, has received significant attention for the recent filming of HBO's Veep and House of Cards, the first production by Netflix. Supporters of the state film production tax credit argue that these high profile productions create jobs and improve the economy in ways that offset lost revenues. These benefits would be forfeited to states with better incentive programs if the credit is allowed to expire, they argue.

However, film production tax credits are problematic for a variety of reasons. The Center on Budget and Policy Priorities handily summarized the issue thus:

• State film subsidies are costly to states and generous to movie producers. ...Over the course of state fiscal year 2010 (FY2010), [forty three] states committed about $1.5 billion to subsidizing film and TV production...money that they otherwise could have spent on public services like education, health care, public safety, and infrastructure
• Subsidies reward companies for production that they might have done anyway. Some makers of movie and TV shows have close, long-standing relationships with particular states. Had those states not introduced or expanded film subsidies, most such producers would have continued to work in the state anyway. But there is no practical way for a state to limit subsidies only to productions that otherwise would not have happened.
• The best jobs go to non-residents. The work force at most sites outside of Los Angeles and New York City lacks the specialized skills producers need to shoot a film. Consequently, producers import scarce, highly paid talent from other states. Jobs for in-state residents tend to be spotty, part-time, and relatively low-paying work — hair dressing, security, carpentry, sanitation, moving, storage, and catering — that is unlikely to build the foundations of strong economic development in the long term.
• Subsidies don’t pay for themselves . The revenue generated by economic activity induced by film subsidies falls far short of the subsidies’ direct costs to the state. To balance its budget, the state must therefore cut spending or raise revenues elsewhere, dampening the subsidies’ positive economic impact.
• No state can “win” the film subsidy war . Film subsidies are sometimes described as an “investment” that will pay off by creating a long-lasting industry. This strategy is dubious at best. Even Louisiana and New Mexico — the two states most often cited as exemplars of successful industry-building strategies — are finding it hard to hold on to the production that they have lured. The film industry is inherently risky and therefore dependent on subsidies. Consequently, the competition from other states is fierce, which suggests that states might better spend their money in other ways.
• Supporters of subsidies rely on flawed studies. The film industry and some state film offices have undertaken or commissioned biased studies concluding that film subsidies are highly cost-effective drivers of economic activity. The most careful, objective studies find just the opposite.

Even the Tax Foundation agrees that film subsidies make little policy sense. Maryland should let the state film production tax credit expire at the end of this fiscal year, as scheduled.

The Week Ahead

Last week MBTPI released our Regular Person's Guide to the Governor's Fiscal Year 2014 Budget. We also hosted a guest blog from Clinton MacSherry, Director of Public Policy for the Maryland Family Network, about the underfunded Child Care Subsidies Program.

Policy highlights for the week of February 18th through February 22nd include:

Budget Hearings

• On Monday: the Senate Public Safety, Transportation, and Environment Subcommittee discusses the Department of the Environment, the Maryland Environmental Service, and the Maryland Aviation Administration at 1pm in room Schweinhaut, Senate Office Building (SOB). Later the House Transportation and the Environment Subcommittee discusses the Maryland Energy Administration, Public Service Commission, and the Office of People's Counsel at 3pm in room 120, House Office Building (HOB).

• On Tuesday: the Senate Budget and Taxation Committee discusses payments to Civil Divisions of the State, the Department of Information Technology, and the Executive Department at 1pm in room 3 West, SOB. The Senate Capital Budget Subcommittee will then discuss the Maryland Energy Administration and Department of Housing and Community Development at 3pm in the same room.

• On Wednesday: the House Education and Economic Development Subcommittee discusses the Maryland Higher Education Commission, aid to education, and workforce development at 1pm in room 145, HOB. The House Health and Human Resources Subcommittee discusses Medical Care programs at 1pm in room 150, HOB. The House Public Safety and Administration Subcommittee discusses the Executive Department, Department of Veterans Affairs, Department of General Services, Maryland Tax Court, and the Worker's Compensation Commission at 1pm in room 120, HOB. The House Transportation and the Environment Subcommittee discusses the Department of Natural Resources, Maryland Transit Administration, and WMATA at 1pm in room 142, HOB. Finally, the House Capital Budget Subcommittee discusses the Maryland Energy Administration and the Department of Housing and Community Development at 4pm in room 120, HOB.

• On Thursday: the House Education and Economic Development Subcommittee discusses the University of Maryland Baltimore County, Towson University, St Mary"s College of Maryland, and Salisbury University at 1pm in room 145, HOB. The House Health and Human Resources Subcommittee discusses the Health Systems and Infrastructure Administration, the Prevention and Health Promotion Administration, and the Maryland Commission on Civil Rights at 1pm in room 150, HOB. The House Public Safety and Administration Subcommittee discusses the Department of Public Safety and Correctional Services (DPSCS), the Maryland Parole Commission, and the State Treasurer at 1pm in room 120, HOB. In the Senate the Education, Business, and Administration Subcommittee takes up aid to education, workforce development, and the Maryland African American Museum Corporation at 1pm in room 3 West, SOB. The Senate Health and Human Services Subcommittee discusses Medical Care programs at 1pm in room Amoss, SOB. Finally, the Senate Public Safety, Transportation, and Environment Subcommittee discusses the Office of the Public Defender and the Department of Natural Resources at 1pm in room Schweinhaut, SOB.

• On Friday: the House Appropriations Committee discusses the State Reserve Fund, payments to Civil Divisions of the State, and the Department of Budget and Management at 1pm in room 120, HOB. In the Senate, the Education, Business, and Administration Subcommittee discusses the Maryland Higher Education Commission, TEDCO (the Maryland Technology Development Corp), and the State Treasurer at 1pm in room 3 West, SOB. The Senate Health and Human Services Subcommittee discusses the Department of Veterans Affairs, the Department of Aging, and the Maryland Commission on Civil Rights at 1pm in room Amoss, SOB. Finally, the Senate Public Safety, Transportation, and Environment Subcommittee discusses DPSCS operations and the Governor's Office of Crime Control and Prevention at 1pm in room Schweinhaut, SOB.

Other hearings

• On Monday: the Task Force to Study Maryland Insurance of Last-Resort Programs meets to discuss Senate Bill (SB) 749, which would make operational changes to the Maryland Automobile Insurance Fund, at 3:30pm in room 231, HOB.

• On Wednesday: Senate Budget and Taxation hears SB 411, which would gradually lower the corporate tax rate, at 1pm. MBTPI will submit testimony calling for several amendments to this bill, and offer our support for the bill if it is so amended. We will post our testimony, including suggested amendments, on our website Wednesday. You will be able to find it under Advocacy>2013 Session. At 2pm the same committee will hear testimony on SB 830, a transportation financing act. MBTPI will also submit testimony calling for several amendments to this bill, and offer our support for the bill if it is so amended.

• Also on Wednesday: the Board of Public Works meets at 10am on the second floor of the State House.

• On Thursday: the Work Group to Review Disclosure Requirements of the Public Ethics Law discusses financial disclosures at 8:45am in room 250, HOB.

• Also on Thursday: the Maryland Health Care Commission meets at 1pm in conference room 100 at their offices, 4160 Patterson Avenue, Baltimore.

Guest Post: Vital Childcare Subsidy Underfunded

Below is a guest post from Clinton MacSherry, Director of Public Policy for the Maryland Family Network.

The Child Care Subsidy Program (CCSP) is critical to helping parents re-enter and remain in the workforce. It is also critical to providing the high quality early care vital to children’s success in school and later in life. Yet the CCSP has been starved of funds nearly to the point of dysfunction.  If we are committed to the twin goals of economic recovery and education—to the short- and long-term quality of our workforce and our economy—then the chronic underfunding of child care must end.

 

Quality child care is an enormous expense.  Subsidizing the cost of child care allows low-income parents to earn and children to learn.  In response to steep federal funding cuts (federal funding is half what it was in FY 2010) Maryland has increased state funding for CCSP, which is commendable but has proven insufficient. In February 2011 the state imposed an enrollment freeze on CCSP.  More than 20,000 children were placed on a wait list.  

Parents confronted with this situation have few options, and none of them are good.  They may pull older children out of school to stay home and babysit younger siblings, place young children in substandard and possibly unsafe arrangements, or face the prospect of losing their jobs.  In November 2012 savings achieved through the enrollment freeze allowed the wait list to be partially opened, but it remains in place for many of the “working poor.”

The enrollment freeze is CCSP’s most visible problem, but hardly the only one.  

Federal guidelines recommend that subsidy rates be pegged to the 75^th percentile of the market rate, ensuring that low-income families have access to quality care.  Maryland last met that guideline a decade ago.  Current reimbursement rates fall below the 15^th percentile, relegating families to the cheapest care in their communities.  Meanwhile, family eligibility remains fixed at a decade-old level (a family of three has to make less than $30,000 annually to qualify) and parent co-payments pose an enormous burden.  For parents to earn and children to learn, CCSP funds must increase.