State House domeBy Len Lazarick

There are many annual rituals in Annapolis, scripted events where often many people play a part but only a few direct the action on stage and know key twists in the plot.

The December meeting of the Spending Affordability Committee is one of those public rituals, and this year marked its 30th annual performance. The script is handed out at the beginning of Thursday’s show – a proposed committee report marked “DRAFT” on every page, but with just a few key blanks to fill in some dollar figures.

Like any good script, the details are hammered out before the almost finished product is handed to the cast. The details are worked out with the close collaboration of top Legislative Services staff, the offices of the House speaker and Senate president, and a few other key legislators.

Behind the scenes

That a lot goes on behind the scenes is obvious from the draft. For instance, it makes numerous references to the official revenue projections by the Board of Revenue Estimates – the comptroller, the treasurer and the budget secretary. They were approved just an hour before the Spending Affordability Committee met.

The good news is that there was again a slight uptick in revenues, $127 million this fiscal year, and $34 million for next. Presuming a baseline budget, where all aid formulas are funded, price inflation is accounted for and slight salary hikes are made, this means that the fiscal 2014 budget would only be out of balance by $383 million, down from $2 billion deficit two years ago.

That’s when the Spending Affordability Committee decided to focus on cutting the chronic structural deficit, rather than setting a percentage for the budget to grow.

“You have made substantial progress in reducing the structural budget gap,” Warren Deschenaux, the legislature’s fiscal chief, told the committee.

Closing the structural gap

On the motion of House Speaker Michael Busch, the committee voted to reduce the $383 million structural gap by $200 million in next year’s budget.

“Why wouldn’t we just close the gap [entirely]?” asked House Minority Leader Tony O’Donnell, playing the role of fiscal scold reserved for Republicans. “I think we would be in a better fiscal position.”

But as the script draft said, “the committee believes that any residual budget gap will be within normal budget management tolerances,” meaning that the budget committee can easily trim another $183 million from whatever Gov. Martin O’Malley submits in January – if he complies with the committee’s recommendations.

“We’ve been doing a pretty good job bringing down the baseline budget,” Busch responded. “If VLT [slot] revenues hold up, we’ll actually be revenue neutral” in subsequent years.

“We’re less than 1% from having a balanced budget,” Del. John Bohanan, House chairman of the Spending Affordability Committee, told reporters. “We’re there.”

Total budget of $37 billion

Under this scenario, the general fund budget will go up about 4% and the overall state budget will go up about the same percentage to about $37 billion, at least $1 billion more than this year’s budget.

Over Republican objections, the SAC also approved increasing the state’s debt limit to $1.075 billion, $150 million more than originally planned. It also referred to similar increases in the following four years.

“I believe we’re setting our citizens up for massive tax increases,” O’Donnell said, referring to the state property tax, which is dedicated to funding bond payments. “I think it’s irresponsible.”

In its final action, the SAC approved a state employment ceiling of 79,626 positions, a few hundred more than last year. State employees have actually declined over the last decade, down 10% (5,700 jobs) in executive branch agencies, but up by 3,300 positions at state colleges and universities.

Fiscal cliff is the big unknown factor

The backdrop of this one-act play in Annapolis is the real drama in Washington as the key players negotiate a way to avoid the fiscal cliff of tax hikes and budget cuts.

While projecting higher revenues, chief revenue estimator David Roose said, “The largest risk to the forecast is the so-called fiscal cliff.” If that happens, “the state will likely be hit harder than most states.”

For the moment, all the revenue estimates and budget projections are based on the assumption that Congress and the president will not drive over the fiscal cliff. But the potential for federal tax hikes may be increasing state personal income tax revenues.  And that potential may be causing “fear-induced early dividend disbursements and capital gains sell-offs,” said Comptroller Peter Franchot.