November 9, 2009

School funding may be next target for state budget cuts

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By Len Lazarick
Len@MarylandReporter.com

Will school funding need to be cut or at least frozen next year? Will some of the burden of teachers’ pensions need to be shifted to the counties?

Some of these most contentious budget issues of the upcoming General Assembly session were previewed last week in Annapolis hearings.

The fact, as legislative leaders told the Maryland Chamber of Commerce Friday, is that the “easy” things have been done to cure Maryland’s continuing deficits. For some state workers the cuts have not been so “easy.”  Many of them have experienced temporary salary cuts through furloughs, gotten no raises, and lost the state’s match of retirement savings. Some have been laid off as well.

The one area of state spending that has gone virtually untouched is K-12 spending, partly because the state had to maintain funding to be able to use federal stimulus funds for education.

School superintendents and school boards told a joint legislative workgroup that as far as they were concerned, education funding had already gone down, and most of Maryland’s school systems had already been making cuts.

Montgomery County, for instance, had given no cost-of-living increases this year for its more than 10,000 teachers, a move that saved $89 million. Anne Arundel, Harford and Prince George’s counties had gone further with no raises based on either the rising cost of living or length of service. Anne Arundel, like the state, had teacher furloughs.

The Maryland Association of Counties is planning to ask lawmakers to ease the requirement that the counties not reduce school spending from one year to the next, the so-called “maintenance of effort.”

The state faces a $2 billion deficit for the fiscal 2011 budget to be passed next year, and the counties are experiencing a similar squeeze because of declining income tax revenues and flat or declining property taxes. The schools have gotten a big $1.3 billion increase in funding since the Thornton aid package was passed in 2002. Aides to Gov. Martin O’Malley were quick to e-mail a chart showing a $700 million increase since he’s become governor to the lone reporter covering the fiscal relationships workgroup.

State agencies have been whacked with real budget cuts – not just reductions in planned spending — and will get whacked again next week at the Board of Public Works. Cuts in school aid that may have been off the table in past years will likely be looked at, especially if there is no second federal stimulus package to further bail out the states.

Pension hole

Six years ago, the state had put aside 92 percent of its $32 billion liability for the future funding of pensions for all the state’s employees, teachers and police. That prudence allowed Maryland to pull back from increased payment into the retirement system. Combined with crummy performance from its stock investments the last two years, the gap between funding and future pay-outs has grown from $2.3 billion to $17.5 billion, and the state has only 65 percent of future costs set aside, as MarylandReporter.com reported last week.

Just to tread water and not go deeper in the hole, the state must put an additional $189 million away for pensions – a total of $1.4 billion in fiscal 2011.

What are the lawmakers and the governor going to do? The hearing last week showed there was little willingness in the General Assembly to do more than the minimum.

Ditto for funding of open space and farmland preservation. With real estate sales down, the transfer tax revenues that fund the purchase of open space and development rights to farmland are down. The governor and lawmakers took $70 million out of the open space account and put it into the general fund, paying for land purchases with bonds instead. Any lose money lying around in other “special funds” will likely get siphoned into the general fund as well.

The Week Ahead

The legislative session is two months away, and Assembly committees are starting to gear up after a quiet interim. Tuesday evening, the joint Spending Affordability Committee will go over the sorry numbers for 2011, prior to its December recommendations for spending. With the huge deficit, this year’s recommendation could well be for negative growth in the state budget.

The slots commission will meet Thursday to consider the Anne Arundel license, and the Business Tax Reform Commission continues its work that day.