Special Report

Maryland Budget Update

January 21, 2010

On January 20, Maryland Governor Martin O’Malley submitted a balanced budget for fiscal year 2011, which begins July 1, 2010.

The Governor faced a $2 billion projected shortfall, caused by revenue shortfalls arising from the faltering national economy.

The Governor proposes to balance the budget through a combination of budget cuts, fund transfers and extensions of federal stimulus payments.

Budget Dimensions

• Total budget $32.1 billion
• 0.8% reduction from this year

• General fund budget $14.0 billion
• 2.4% decrease from this year
• (Excludes federal funds and legally restricted “special funds”) 

Balances:

How is it balanced?

• Budget cuts $1.0 billion
• Transfers $913 million
• Federal stimulus extension assumed $389 million

 Reserve fund

The budget does not withdraw funds from the state's Revenue Stabilization Account ("Rainy Day Fund") in fiscal year 2011, leaving it at the benchmark 5% of estimated revenues - $633 million.

What goes up?

• K-12 education aid +$189 million
• $99 million increase in direct aid, $90 million in teacher retirement contributions
• Medicaid +$539 million
• +$260 million in general funds
• Reflects increased eligibility due to the economy

 What goes down?

• Education – federal funds -$208 million, reflecting expiration of federal recovery funds.
• Environment -$167 million, reflecting expiration of Recovery Act funds
• Disparity grants to low-income jurisdictions -$20 million

Highlights:

The Governor is highlighting “fiscal responsibility” as the major budget theme, pointing out that during his term, the state will have made $5.6 billion in budget cuts and eliminated over 3500 state positions.

The proposed general fund budget for fiscal year 2011 is under the 2007 actual expenditures.

The governor is also touting:

• A $20 million job creation tax credit
• $20 million for Chesapeake bay restoration projects
• Holding higher education tuition increases to 3% after 3 years of tuition freeze.

Reductions

Among the largest reductions outlines by the Governor were:

• $330 million from level-funding most local aid programs (perpetuating deep cuts made in 2010)
• $123 million in reduced Medicaid rates for hospitals
• $146 million in cuts to employee compensation, including up to 10 furlough days, no scheduled step increases and no employer match to deferred compensation contributions.

State Jobs

The budget abolishes 187 state jobs in addition to the 745 that have been abolished in cost containment actions since July. 47 new positions are created, including 11 in the Lottery Agency to oversee slot machine operations and 10 state trooper positions.

Spending Affordability

The legislature’s Spending Affordability Committee recommended that state spending growth not exceed 0%, based on the unique calculation methodology that it has always used.  Under this calculation, the Governor’s budget declines by 2.9%, putting it $606 million below the recommended maximum.

This suggests that the spending affordability limit will not be a constraining factor in this year’s budget deliberations.

Revenue Estimates

The Board of Revenue Estimates revises the state’s official revenue forecast one more time (in mid-March) before the legislature takes final action on the budget.

5-year forecast

The Department of Budget and Management produces a five-year financial forecast as part of the Governor’s budget.  Many of the actions proposed to balance the 2011 budget are not on-going – use of special fund balances, employee furloughs and federal stimulus for example.  In each of the five years, the department projects a shortfall of $1.5 to $2.5 billion.  So, even when the state gets through this budget session, there will be more tight budgets in the years to come.

What’s Next?

For the next 11 weeks, the legislature will hold hearings, review analyses by its staff, and work to approve the budget.  It will also consider separate legislation to transfer funds, alter funding formulas, and make other legal changes that become part of the budget plan. During this time, the Governor may introduce one or more supplemental budgets.  April 5 is the constitutional target for the legislature to complete its work on the budget.  The legislature does not always meet this target, but usually finishes the budget by the scheduled end of the legislative session, April 12 this year.  The new fiscal year begins July 1, 2010.

The Regular Person’s Guide to the Governor’s Budget

The Maryland Budget and Tax Policy Institute’s “Regular person’s Guide to the Governor’s Budget” will be ready in February with more in-depth information on budget highlights and low-lights.

Updates

The Institute will also provide regular updates on budget news on our web site throughout the legislative session.

Sources

Department of Budget and Management, Maryland Budget Highlights FY 2011, and Maryland Budget Volumes 1, 2 and 3, Annapolis, Maryland 2009. http://dbm.maryland.gov/agencies/operbudget/Pages/2011OperatingBudgetDocs.aspx

Office of the Governor, briefing on the Fiscal 2011 budget. http://www.gov.state.md.us/pressreleases/100119.asp

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