January 26, 2010

Budget briefing: Miscounted kids, more slots dough, huge temporary fixes and lingering deficits

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By Len Lazarick
Len@MarylandReporter.co

The number of Baltimore City public school kids may be undercounted, and Maryland may get more slots money this year than expected, legislators learned as they began dissecting the proposed state budget Monday.

But more than by any other surprise, lawmakers said they were taken aback by the degree to which the $32 billion budget is balanced on one-time fixes.

There was also surprise about bumps in state aid to wealthier counties like Montgomery that have seen their income taxes decline and about a slight drop in aid to Prince George’s County.

Warren Deschenaux, the General Assembly’s chief fiscal analyst, and other budget analysts started pulling apart Gov. Martin O’Malley’s fiscal 2011 spending plan for lawmakers who have two months to cut it.

Deschenaux emphasized that O’Malley’s balanced budget depended on one-time fixes and an infusion of federal dollars that would still leave the budget $2 billion out of balance in future years.

He said some of the moves represent “an erosion of accounting standards.”

Total spending and the general fund budget are lower than last year, but “I wouldn’t get too excited about that just yet,” Deschenaux said.

For one, almost three quarters of the $2 billion gap between planned spending and available revenues is filled by temporary swaps. For instance, the state is taking $442 million out of accounts for capital projects such as land preservation, putting them into the general fund, and then replacing the money with bond debt.

O’Malley also borrows $350 million from the reserves set aside to pay counties their share of the local income tax, a move he also made last year.

“This is not optimal by any stretch of the imagination,” Deschenaux. On the other hand, “there’s very little that’s actually new” in these accounting moves, which have been used during other recessions.

On the plus side, despite the media coverage about the “glacial” pace of implementing slot machine gambling, slots are actually expected to bring in $73 million more this year than originally estimated.

But an expected $389 million in new federal dollars for Medicaid health insurance “is not a certainty by any means,” Deschenaux said. He suggested the legislature cut at least $250 million more in case the federal funds don’t show up.

One thing that didn’t show up in the budget is a possible undercount of 2,200 children in Baltimore public schools. Current funding formulas would translate this into $20 million more in state aid for city schools.

Sen. Richard Madeleno, D-Montgomery, a former budget analyst, said it was “shocking” that school enrollment figures haven’t been finalized yet. They used to be available immediately after Thanksgiving.

“We still don’t know some of the variables” that affect the budget, Madaleno said. The lack of final enrollment numbers “makes it very difficult to figure out” the school aid that makes up $5.3 billion in the total budget.

Another surprise in the briefing was a 10 percent increase in aid to Montgomery County ($73 million) and 7 percent bumps for Anne Arundel and Howard counties, while Prince George’s County would see its state aid drop by 2.5 percent ($27 million).

Aid formulas are based on personal income taxes, and Montgomery “is not as wealthy as it once was,” Deschenaux explained. The decline in wealth for the richer counties means the disparity with Prince George County has narrowed, so the county will receive less state aid.

Almost all the increased aid to the counties goes to public schools or teacher pensions. Otherwise state aid has been cut for roads, police, and libraries.

Despite these cuts and continuing furloughs for state employees who will get no raises, “there still is a structural imbalance” in future years, said analyst David Juppe.

Del. Steve Schuh, R-Anne Arundel, an Appropriations Committee member, said, “I was surprised at how much of the corrective actions are one-time accounting maneuvers, fiscal raids and other budget tricks.”

“I thought we were at the end of this,” Schuh said. “What we’re seeing is a clear road map to a major tax increase next year.”