Conference committee resolves budget differences

A conference committee of delegates and senators has resolved the differences between the two houses’ versions of the budget, just four days prior to the legislative session’s scheduled conclusion.

Even though the two plans were not very different, the legislature allowed the constitutional target date of April 1 to slip by before concluding the budget process. Legislative leaders may have been awaiting the resolution of other legislation (such as the firearm safety act) and a supplemental budget proposal from the governor before finalizing their budget action.

The final budget left intact 98.8 percent of the funding proposed by Governor O’Malley in January.

Key Conference Committee decisions

• One of the major differences between the House and Senate budget plans related to pension contributions and fund balances. The 2011 pension reform law called for the state to make an extra contribution of $300 million to the teachers’ and employees’ pension funds next year.  The Senate cut this to $200 million, and added the savings to the general fund balance, so it could be available if needed to absorb the effects of federal cutbacks.
  

The conference committee accepted the cut to the extra pension contribution, but placed it in the “Dedicated Purpose Account” of the state reserve fund. This way, it could be used by the governor (subject to review by legislative committees) without the need for action by the whole legislature. By using this mechanism, the governor could replace funding for critical services without either waiting for the 2014 legislative session or calling a special session.

Any unused amount would be forwarded to the pension fund after the end of this calendar year.

Counting this addition to the contingent fund  the final amount of balances ($1.16 billion) is close to the amount recommended by the Senate.

• The conference committee accepted most of the items in Governor O’Malley’s proposed supplemental budget, with these exceptions:

The conference committee rejected $432,000 in general funds to cover part of emergency management and National Guard expenditures for the derecho and Hurricane Sandy. The conference committee suggested that the agencies be allocated the funds from the state’s Catastrophic Event Fund. That fund has $1 million available.

The conference committee directed that $300,000 included by the governor for the Towson University men’s baseball team should instead be used as matching funds for an intercollegiate athletics donation incentive program. The program would provide matching funds for Division I schools in the University of Maryland System to support sports to maintain compliance with Title IX requirements.

Next steps

Update: The House and Senate have both approved the conference committee report and passed the budget bill in final form. The budget bill becomes law immediately upon passage by the legislature and does not require the Governor’s signature.

Supplemental budget includes ... a lot of different things

The Governor sent the legislature a supplemental budget on Monday, April 1, adding $218 million to the proposed budget: about 1/3 of 1 percent. Of this amount, only 1/3 is “general funds,” meaning it is funded with regular tax revenues.

The Governor maintains the balanced budget by recognizing $140 million of the cuts the legislature is expected to make in the original budget.  Even if the legislature approves all of the proposed amounts in the supplemental budget, the budget remains balanced with a cushion of over $1 billion in the state’s Rainy Day Fund plus the year-end general fund balance under either the House of Delegates or the Senate plan.

The supplemental budget includes 101 separate items ranging from a mere $75 to correct a funding formula for limited English proficient education to $83 million in additional federal Medicaid funding. Here are a few highlights (figures reflect the total of all fund sources):

Sequester Reserve

The supplemental budget places $10 million into the “Dedicated Purpose Account” to support critical programs which may be disrupted by federal “sequester” cuts. These funds would be available for release during the fiscal year following review by legislative committees.

Providing for New Legislation

Some of the supplemental budget items relate to costs associated with pending legislation.Gun control, wind energy, and the Baltimore City school building initiative all have items related to them.

Other Initiatives

A $3.3 million initiative is designed to help remedy persistent needs at Maryland’s four historically Black colleges and universities. Other items provide additional funds for low-income local governments, tourism promotion, and the men's baseball team at Towson Unversity.

Normal Operating Needs

Some supplemental items provide funds for normal operating needs of state operations, or cover shortfalls in the existing budget. Disablilty services, police, mental hospitals and juvenile services all get operating funds.

Casino dollars replace state funds for schools

New estimates of casino revenues added $10 million to the Education Trust Fund. This allowed the governor to subtract $10 million in general funds from school aid budgets. This item demonstrates that while the state share of Maryland’s casino revenue is dedicated to local schools, it does not add to the schools’ resources–it merely replaces other state funding.

Assorted Good Causes

The supplemental budget contains funding for many local organizations and projects. Often, these address particular needs and opportunities which legislators or others have brought to the governor’s attention. Some people consider these items "pork." Here is a partial list.

$2.5 million    For the Eastern Family Resource Center in Baltimore County.

$1.35 million For eastside redevelopment projects in Baltimore City.

$500,000         To the Prince George’s County State’s Attorney for violent crime prosecution.

$500,000         To assist non-public schools with textbook purchases.

$366,000         Operating cost assistance for the Hippodrome Arts Center in Baltimore City.

$160,000         For the Civic Justice Corps summer program.

$120,000         For the Historic Annapolis Foundation.

Process

The budget bill is currently referred to a House-Senate conference committee to negotiate differences between the two chambers. The conference committee will also approve, disapprove, or reduce the supplemental budget items. The House Appropriations Committee and Senate Budget and Taxation Committee will review the items, and provide guidance to their respective chambers’ conference committee members. 

The conference committee must complete its work and the House and Senate must approve the conference committee’s report by the last day of the regular legislative session, Monday April 8. Otherwise, the legislature will go into an extended session to complete the budget.

The Department of Legislative Services’ analysis and recommendations are here.

MBTPI's full briefing paper on the supplemental budget is here.

Train Wreck

The 2012 legislative session ended last night in a budgetary train wreck.

In the waning hours of Maryland’s 90-day legislative session, House and Senate negotiators had hammered out a deal on a revenue package. However, time ran out without the legislation receiving final approval on the floor of the House and Senate.

The revenue bill was caught behind negotiations regarding expansion of gambling to include table games at existing slot machine locations and a new casino in Prince George’s County. Approval of the revenue package also was delayed by a string of amendments proposed by opponents of a bill to require counties to levy fees for storm water management improvements.

The budget bill did pass into law shortly before the midnight deadline. It contains provisions that enforce additional deep cuts, referred to around Annapolis as “the Doomsday Budget.” It includes cuts to healthcare providers, colleges and universities, public employees and much more.  

To avoid the “doomsday” cuts, the legislature would need to return in a special session before July and enact a tax bill and budget reconciliation legislation. However, in comments after the end of the legislative session, Governor O’Malley did not immediately commit to call such a session into existence.

Maryland needs a balanced budget that protects essential services today and builds Maryland’s educated workforce of the future. The Governor, President and Speaker should commit to scheduling a special session devoted exclusively to completing their work on the budget and revenues. That special session should not take up gambling expansion, transportation revenues, or other matters – important though they may be. The legislature should agree on a revenue package that is fair, adequate to fund the budget without resorting to doomsday cuts, and sustainable to minimize the problem the state faces in future budgets.

Governor proposes supplemental budget

On Monday, Governor O’Malley submitted a modest supplemental budget to the legislature. It’s easier to decode the items by looking at the Department of Legislative Services' analysis of the supplemental budget.

The budget adds a net $70 million to the budget. More than half of that amount is covered by additional federal funds ($8 million) or dedicated special revenues ($36 million).

The supplemental budget adds $27 million in general funds. This is a net number. The supplemental budget subtracts $30 million in general funds from Medicaid (making more favorable assumptions about enrollment next year) and $10 million from state employee pharmacy benefit costs (based on a re-bid of the pharmacy contract). So the amount of general fund items added to the budget is close to 27 + 30 + 10 = $67 million.

By MBTPI’s reckoning, $22 million reflects normal operating costs that are now being properly recognized in the budget. Some of the items include overtime in state correctional facilities, the costs of youth assigned to private residential facilities by juvenile courts, and increased energy and utility cost for state buildings and the state police vehicle fleet.

There are 24 items totaling $30 million that MBTPI considers “policy” items:

The $2.2 million item for Healthy Families home visiting programs is one that MBTPI has particularly called on the Governor to restore to the budget.

Another large item in the supplemental budget is $8.4 million and 85 new positions to allow the public defender system to comply with a new court ruling that requires the state to offer arrestees legal representation at bail hearings.

The budget conference committee members will consider the items in the supplemental budget as they complete action on the initial budget.

House and Senate conferees now in place

As we discussed yesterday, the state Senate and House of Delegates have each passed their own version of a budget plan. Now, it’s up to a conference committee to work out the differences. Actually, there are three conference committees, since three separate bills are needed to put next year’s budget into effect. 

Senate	House
Budget Bill (SB 150) Kasemeyer, Madaleno, DeGrange, Robey, Colburn Senate advisors: Jones-Rodwell, McFadden	Conway, Proctor, Bohanan, Gaines, Beitzel House advisors: James, Haynes, Guzzone
Reconciliation Act (SB 152) Kasemeyer, Madaleno, DeGrange, Robey, Colburn Senate advisors: Jones-Rodwell, McFadden	Conway, Hixson, Jones, Griffith, Hammen House advisors: Bohanan, G. Clagett, Gaines, Beitzel
Revenue Bill (SB 523) Kasemeyer, Robey, Madaleno, DeGrange, Jones-Rodwell Senate advisors: McFadden, Manno	Hixson, Frick, Barve, Rosenberg, Bohanan House advisors: Jones, Branch, Ross

“Advisors” participate in the conference committee’s discussions, but do not vote. A majority of members of the whole conference committee – Senate and House members – must approve a conference committee report for it to go back to the Senate and House for final approval.

Both versions include budget cuts, progressive revenue measures, and a shift of a portion of the cost of teachers’ retirement to local government budgets.

Significantly, the Senate has a larger revenue package, which would leave a smaller revenue shortfall in the 2013 and future sessions. The Senate package also leaves a larger fund balance at year end. In the event that Maryland’s finances are affected by an economic downturn or federal budget cuts, we are less likely to need mid-year budget cuts under the Senate proposal.

MBTPI recommends using the Senate’s tax rates, without the flat rate applying to taxpayers over $500,000. In addition, adopt the House plan to phase out personal exemption amounts for high-income filers. This proposal allows for a larger fund balance this year, reducing the likelihood of mid-year cuts, and it positions the state for a more manageable budget over the next two years.

The Senate scheduled the teacher retirement shift evenly over four years. The House version does it in just three years, and it’s “front-loaded:” passing ½ of the cost to counties in the first year. MBTPI supports the 4-year phase in of the teacher retirement shift. It will avoid an abrupt crisis for local government budgets and give them more time to adjust, and for local revenue sources to recover.

Both versions increase the tax on cigars to be more comparable with the tax on cigarettes. The House version includes a significant tax increase on chewing tobacco, whereas the Senate version increases chewing tobacco taxes only slightly. MBTPI supports a uniform 66% rate on cigars, chewing tobacco, and other non-cigarette tobacco products. (Retain the existing 15% rate only for premium cigars. They are not marketed to appeal to teens and young adults). This will substantially increase the cost of all tobacco products readily available to young people, effectively reducing tobacco use by youth. This proposal will retain a single rate for almost all non-cigarette tobacco products, and place all of them at a comparable tax rate with cigarettes. If the conferees do not support an increase in the rate on chewing tobacco to 66%, then we favor retaining the 70% rate on regular cigars in the House and Senate proposals.

Please call on legislators to tell the conference committee members to support these positions for a responsible budget that promotes education, health and Maryland’s sound future. You can also urge your representatives in the legislature to discuss these positions with conference committee members.

You can use this link to email a legislator.

Senate Appoints Budget Conferees

The Senate has appointed its conference committee members and advisors on the budget package (see below). Since there are actually three bills with Senate-House differences, there are three conference committees, though there is considerable overlap. Senators Kasemeyer, DeGrange and Madeleno will sit on all three conference committees.

The next step is for the House of Delegates to appoint its conference committee members and advisors.

Advisors participate in the conference committee’s discussions, but do not vote. A majority of members of the whole conference committee – Senate and House members – must approve a conference committee report for it to go back to the Senate and House for final approval.

As we discussed earlier, the Senate’s revenue plan is more sustainable than the House’s. The Senate conference committee members should push to maintain an adequate amount of revenue so that the legislature does not face a big revenue shortfall again next year.

The Senate plan, however, has a big loophole for chewing tobacco and similar  smokeless tobacco products. The Senate conferees should move to the House plan for tobacco taxes, or even better, a uniform 66% tax on all non-cigarette tobacco products.

The state constitution calls for the Senate and House to agree on a final budget by next Monday, April 2. The budget bill will become law immediately upon final passage by the Senate and House. The other bills must be signed by Governor O’Malley to reach the finish line.

Senate Conferees

Budget Bill (SB 150)

Kasemeyer, Madaleno, DeGrange, Robey, Colburn

Senate advisors:

Jones-Rodwell, McFadden

Reconciliation Act (SB 152)

Kasemeyer, Madaleno, DeGrange, Robey, Colburn

Senate advisors:

Jones-Rodwell, McFadden

Revenue Bill (SB 523)

Kasemeyer, Robey, Madaleno, DeGrange, Jones-Rodwell

Senate advisors:

McFadden, Manno

The Week Ahead

The conference committees meet this week to hammer out the differences between the House and Senate Operating Budgets.  Last week we analyzed the differences between the House and Senate budgets.  You can see MBTPI's recommendations for the conference committees and contact committee members here.  The House and Senate also have a number of hearings on the capital budget. 

Monday, March 26th

Monday is Crossover Day.  This is the deadline for each chamber to send the other those bills it intends to pass.  Bills sent across the hall after this date will be referred to the Rules Committee instead of the relevant committee based on their substance, and may not get heard.

Friday, March 30th  

The Bureau of Labor Statistics will release state employment figures for February 2012.  In January Maryland's unemployment rate dropped to 6.5 percent, its lowest rate in three years.

Senate budget plan is more sustainable

How big a problem will this year’s budget leave for next year? That is a critical question for conference committee members to evaluate in resolving differences between the Senate’s budget plan and the House of Delegates’ version.

The House Appropriations and Ways and Means committees have provided 37 pages of description and analysis to back up their budget recommendations. But nowhere do they estimate the effects of this year’s budget on next year’s finances.

We have done some back of the envelope estimating at MBTPI. If the Senate plan takes effect, we think revenues will be about $50 million short of meeting projected expenditures. That’s not ideal, but it’s well within the range of normal budgetary adjustments.

The House version, though, provides less revenue and a smaller year-end balance. The result: a $200 million shortfall for the legislature to resolve this time next year. In order to bridge that gap, the state will either need to revisit its options for new taxes, or make more cuts to education, healthcare, public safety and community services.

Also, the Senate plan leaves a much larger cushion in the state’s general fund for June 2013 – meaning there’s less risk of precipitous mid-year cuts in the event of a revenue drop caused by a worsening of the fragile economy or federal budget cuts.

The Senate tax plan does affect most households in the state, but it calls for a pretty moderate contribution. For families in the middle of the middle class (around $55,000 in income) it’s less than a dollar a week. For those at the upper reaches of the income range, it’s still less than one fifth of one percent of their income.

It’s better to provide adequate, responsible and sustainable revenues now. The conference committee should support a revenue plan that’s closer to the Senate version.