Senate Budget and Tax Committee approves budget

March 20, 2010. The Senate Budget and Taxation Committee has completed its action of the 2011 budget.  The Committee recommended about $120 million in “general fund” cuts. This is in line with the amount the legislature cuts in a typical year. The Committee did not make a $60 million cut to local schools, or $30 million to Baltimore City transportation aid, both proposals which were under discussion as the Committee made its final decisions. The Committee’s plan would leave about $200 million in the state general fund, in addition to over $600 million in the state reserve fund.

More dramatically, the Committee is recommending legislation to sharply reduce the growth in future budgets. Limitations would affect transportation, higher education and local school funding. In addition, local school systems would become responsible for a share of teachers retirement payments beginning with fiscal year 2012.

After approval by the full Senate, the budget will move to the House of Delegates and then to a conference committee of Senators and Delegates. The state constitution calls on the legislature to complete its work on the budget by April 5.

Fiscal Year 2011 Actions

At the Maryland Budget and Tax Policy Institute we strive to strip out the jargon and complexities and make budget matters easy to understand. The Senate Budget and Taxation Committee has challenged us with some very arcane and convoluted budget actions. Here’s our best shot at making sense of some of them:

• The largest cut to the budget now before the legislature is a technical change to the Medicaid budget. The Committee cut $60 million. The adjustment relates to new federal rules regarding the state’s liability for prescription drug benefits for patients who are “dually eligible” for both Medicaid and Medicare.
• $8.2 million would be cut from cigarette cessation programs. This program is funded with tobacco settlement proceeds. Reducing cigarette cessation funding will free up settlement proceeds, which will be re-allocated to Medicaid, another allowable use of these funds. This in turn, allows the committee to cut $8.2 million in general funds from the Medicaid budget.
• The Committee cut $8.2 million from the Temporary Disability Assistance Program (TDAP), which provides $185 a month to disabled adults with no other source of income. The legislative staff has a more favorable caseload estimate for the program than the Governor does. Of the $8.2 million amount, $1.3 million from the budget originally presented by the Governor for TDAP would be reserved to allow the Governor to partially restore cuts to respite care and service-linked housing programs. This transfer is the Governor’s option, because the state constitution does not allow the legislature to transfer funds in the budget from one program to another.
• The Committee cut $11 million for state job reductions.  The budget bill would require the Governor to eliminate 500 state jobs before June 30, 2011.  The Governor is authorized to eliminate positions through attrition or to offer financial incentives for employees to separate voluntarily from their state jobs.
• The Committee reduced the Chesapeake Bay 2010 fund by $32 million from the amount required by existing law. This is a $10 million larger cut than recommended by the Governor. Of the $15 million remaining, the committee would require that $5 million be used for grants to farms for the planting of “cover crops” to reduce agricultural nutrient run-off.

In a more straightforward budget cut, the Senate committee cut funding for Stem Cell research by one half from $12.4 million proposed by the Governor to $6.2 million.

We are looking forward to explaining House Appropriations Committee budget actions to you next week.

Capping Growth in the Out-Years

The Senate Budget and Taxation Committee’s actions to restrain growth in the “out years” are more dramatic than their actions on the upcoming budget.  The budgets for fiscal year 2012 and future years (“out-years”) have projected shortfalls in the neighborhood of $2 billion to $2.5 billion. This occurs because the fiscal year 2011 budget is balanced on over $900 million in one-time fund transfers and about $1.2 billion in Federal Recovery Act funding that will run out by fiscal year 2012.

The committee took actions that reduce projected future budgets by $600 to $800 million. For example:

• Under the Committee’s plan, local school systems would begin contributing towards teacher retirement payments in 2012. The estimated local impact (and the savings to the state treasury) would be $63 million in 2012 and would phase up to over $300 million by 2014.
• Growth in per-pupil aid amounts to local school systems would be capped at 1%, regardless of actual inflation increase, through 2015.
• Other aid programs to local government would be capped at their reduced 2011 levels through 2015. This would affect programs for community colleges, local health programs and police departments for example. The spending freeze has an estimated impact of about $70 million beginning in 2012.
• The committee would also freeze funding for higher education at the current per-pupil amounts. This saves over $100 million per year compared with the previously projected amounts.
• The committee expresses its intent that total employee compensation in fiscal 2012 should not exceed the 2011 amount.

These committee proposals have a certain logic to them. After all, the budget proposed by Governor O’Malley for the current year is balanced. The projected shortfalls are in the future years, so it makes sense to take actions that close the budget gap in future years.

The concern relates to the process for developing this set of proposals. The proposals are large and far-reaching.  They’ll have ramifications for state-local relations, tax policy, education policy, personnel management, and many other issues. They represent de-facto cuts in state and local programs – especially in education. They’ll have effects on effectiveness, and on education disparities. Such proposals deserve a vigorous public debate. Affected parties, experts and citizens should have some input.  

In addition, the Budget and Taxation Committee’s proposals close only about half of the projected budget gap. An equal amount will be still needed to balance future budgets. The Governor and legislature need the opportunity to weigh the costs of further cuts against the possibility of reasonable and fair revenue measures. A balanced approach to resolving the state’s projected budget shortfall is preferable to an all-cuts solution.

Next Steps

The budget will now be considered and approved by the full Senate. At the same time, the House Appropriations Committee will make its decisions on budget items. After the House of Delegates approves its version of the budget, a conference committee of 5 Senators and 5 Delegates will meet to resolve differences.

The state constitution calls on the legislature to complete its work on the budget by the 83rd day of the legislative session: April 5 this year.

©2010 Maryland Budget and Tax Policy Institute. All Rights Reserved.

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