Halfway Through Budget Hearings: Recommended Cuts Total $101 Million So Far

With the General Assembly’s budget committees about halfway through their hearings, the biggest challenge facing lawmakers is how to continue investing in services that Marylanders rely on every day.

As the committees debate and amend the budget proposal, they are guided, in part, by the Department of Legislative Services’ (DLS) in-depth budget analysis. Last month DLS cautioned that the governor’s budget—while balanced—does not leave enough of a cushion at the end of the year to account for unexpected expenses during the year. Subsequently, as the committees work through each agency’s budget, DLS offers a menu of recommended cuts for each agency. While the legislature cannot add new money to the governor’s budget proposal, they can cut spending in some areas and transfer those funds to other priorities elsewhere in the budget. 

DLS is recommending several good solutions, including:

• Replacing $30 million allocated for debt service reduction with proceeds from anticipated sales of bond premiums.  
• Reducing various personnel and administrative costs in state agencies by $27.2 million, mostly through eliminating vacant positions or through technical adjustments, like turnover rates and cost-of-living adjustments. 
• Cutting $17.6 million from the Department of Agriculture, since this amount was already paid for by the Chesapeake and Atlantic Coastal Bays 2010 Trust Fund.

Unfortunately, not all of DLS’s recommendations were so good. In fact, some of the agency’s recommended reductions would cut money from important state programs and services, including: 

• $14.4 million cut to economic development efforts, which includes $8.9 million for the Maryland Economic Development Assistance Authority and Fund (MEDAAF), $2 million for a biotechnology tax credit, $1 million for a cyber-security tax credit, and $2.5 million in tourism development grants. 
• Cuts to investments that support Maryland's working families, which include a $3.6 million for job training through Employment Advancement Right Now (EARN), $2 million for child care assistance, $500,000 grant for the Maryland Food Bank, and a $100,000 grant for Roberta's House. 
• $3 million cut to foster care
• $799,000 cut to agricultural land preservation through the Tobacco Transition Program
• $125,000 cut to the Department of Aging's Maryland Access Point

Lawmakers should think twice before cutting any of these programs, and should instead focus their efforts on other parts of the budget.

Next month the Board of Revenue Estimates (BRE) will release updated forecasts of state revenue for Fiscal Years 2014 and 2015.  Any increases from the December forecast will provide additional flexibility and funding as the General Assembly moves towards passing their final budget plan in April. 

As the budget committees continue their work, check back here for updates.

Governor releases details of special session agreement

Governor O'Malley, Senate President Miller, and Speaker Busch held a press conference this morning (video) outlining the agreement they have come to for the special session starting May 14th.

For the most part, the new Budget Reconciliation and Financing Act (BRFA) and revenue bill will follow the template created by the conference committee at the end of the regular session.  Other highlights from the press conference included:

• The session should take three days.
• The special session agreement will include an additional $109 million in cuts.  The majority of the new cuts, $80 million, are actually due to revised estimates of Medicaid costs..  However, there is no explanation yet on where the other $29 million will come from.
• The revenue package will include a tax increase on single filers making more than $100,000 and joint filers making more than $150,000 (the top 16 percent of filers, according to the Governor).  The House and Senate leaders confirmed they are in agreement on this point.
• Sharing education pension costs with counties is part of the deal, phased in over four years.
• Transportation funding is a continuing problem, but will not be addressed this year.  Nor will the "net taxable income" issue (NTI).  NTI is an element of the education funding formula of particular importance to Baltimore City and Prince George's County. The governor said that he plans to do something about NTI in his budget next year.
• The overall FY2013 budget will grow 2.6 percent, but general fund spending will decline $380 million.
• The fund balance at the end of FY 2013 is projected to be $204 million, an improvement over the $155 million balance projected in the conference agreement. This will help protect the state against the possibility of mid-year cuts, and put the state in a better position to balance the next budget.

The governor also said he would send a letter to the speaker and senate president to begin convening a working group on gaming shortly, in anticipation of calling a second special session later this summer.

Arguing Until Doomsday; Fair and Moderate Revenues Needed to Prevent Catastrophic Cuts

Earlier today the legislature’s top staff analyst briefed Senators on the “Doomsday Budget” scenario. The document is officially called Contingent Reduction Options, but “Doomsday Budget” is much more descriptive.

The Doomsday Budget cuts, totaling $795 million, would take effect if the legislature does not approve new revenues, the pension shift or both.

As we outlined earlier (Plan B: Crippling cuts to education, healthcare and jobs) the cuts would hit public schools ($205 million), colleges, universities and scholarship programs ($186 million), local governments ($103 million), medical assistance ($100 million), public employees ($78 million), and more.  

These cuts go far beyond the normal adjustments that the legislature makes, and will continue to make, to the Governor’s proposed budget. Frighteningly, the “Doomsday” cuts are not just rigged to create shock value. They are realistic. If the state takes an all-cuts approach to the budget then local schools, healthcare, college kids, and local governments will be the biggest losers. That’s because those are the areas where the vast majority of state dollars go.

These cuts would hurt Maryland families and businesses in their day to day lives beginning July 1, 2012 when the budget takes effect. They would hurt Maryland’s ability to grow and prosper for years into the future. “Doomsday” is a little dramatic – but these cuts would be much worse for our state than the taxes needed to raise the equivalent revenues.

And we do not need to inflict them on ourselves. In our next blog, I’ll discuss the reasonable and moderate revenue measures that are now under consideration.  Supporting a balanced revenue package to avert doomsday is the responsible thing to do.   

Governor O'Malley Signals a Balanced Approach to Balancing the Budget

Traditionally, Maryland governors use their speech at the annual Maryland Association of Counties (MACO) convention in Ocean City to unveil their key policy initiatives for the year. On Saturday, Governor O’Malley spoke to the assembled local officials about the budget situation facing Maryland. The Baltimore Sun’s coverage is here.

The Governor told the hard truth that extending Maryland’s “steady diet of cuts” will be unhealthy, and we now need a balanced approach to balancing the budget.

As detailed in our recent report, the $5 billion already cut from the budget is already hurting us in the present and harming Maryland’s economic future. Schools are increasing class sizes and eliminating programs. Staffing shortages are affecting security in prison and parole operations. There is a waiting list for child care assistance. The list goes on and on.

At the same time, the state faces a billion-dollar shortfall of revenue needed just to maintain services at this pruned-back level. Closing this gap with a cuts-only approach will hurt Maryland families now, and harm our economy for years to come.

Federal budget actions are likely to make the state’s financial situation more precarious. The congressional “super committee” is slated to issue its recommendations by November 23. Medicaid, the largest single item in Maryland’s state budget, is at risk. Medicaid covers nearly 550,000 low-income Marylanders. And 58% of them are children.

Medicaid costs are shared between the state and the federal government. One likely way the federal government will reduce its deficit is to foist more of the costs of Medicaid onto the states.

That would further increase Maryland’s shortfall in the future.

So, the Governor is ready to think about a balanced solution that includes revenues. We think that is the correct approach.

The Governor says he is not yet ready to talk about what specific revenue measures he will propose. The revenue package should be fair. It should not have a disproportionate impact on low-income residents. It should help Maryland towards a sustainable economic future.

Our recent report suggests some reforms that will add revenues in a fair and economically viable way. Modernizing the sales tax to include more services, reforming corporation taxes to eliminate tax dodging by big, multi-state companies, and making the income tax more progressive are all good options.

It’s time for Maryland to think about putting our state’s finances in sound condition and investing in our future prosperity.