January 27, 2015

Fewer gimmicks in Hogan’s $40 billion budget; solves deficits for 3 years by capping spending hikes

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Fiscal briefing 1-26-2015

Photo above: Legislators get a budget briefing in the Joint Hearing Room Monday.

By Len Lazarick

Len@MarylandReporter.com

General Assembly budget committees got their first comprehensive briefing on Gov. Larry Hogan’s $40 billion fiscal 2016 budget Monday, with Democrats expressing continuing concern about the impact of reductions to expected increases in school funding.

In his two-hour briefing, Warren Deschenaux, the legislature’s chief fiscal analyst, also called a proposed 2% across-the-board, unitemized cuts “a very dangerous approach to budgeting” that sets “a bad precedent.” (Click here for full text of the briefing. You can also watch the briefing online.)

Overall, the Hogan budget increases spending by only 1% and uses fewer fund transfers and gimmicks to balance the budget than in past years. But it does use $184 million in transfers, including $100 million borrowed from local piggyback income tax collections that will be repaid the following year.

“This is as clear-cut a gimmick as I have ever seen in a budget,” Deschenaux said, though it’s a tactic that has been used in some form in other recent budgets.

The budget actions by Hogan will solve the lingering structural deficits for the next three years, but only if the legislature approves dozens of changes in laws that will shift revenues, transfer funds and restrain mandated spending.

Revenues will exceed expenditures

“If you do everything the governor asks … revenues will exceed expenditures” until 2018, Deschenaux said.

Long-term, the Hogan plan caps increases in school spending at 1% a year and it reduces spending growth for other formulas to 1% less than the percentage growth in general fund revenues, what Deschenaux described as “a quite clever” proposal that “prevents spending growth.”

The Hogan plan also expects college and university tuition to rise 5% next year, and 4% annually after that.

State employees not only will have to hand back this year’s negotiated 2% raise, but are assumed to get no cost-of-living increases in following years.

Hogan’s forecast also assumes no tax cuts, although the governor has pledged to fulfill his campaign promise to roll back as many of the O’Malley tax hikes as he can. He even said last week he will propose some tax cut this year.

Budget Secretary David Brinkley said the 2% across-the-board cut at state agencies was simply a continuation of the action taken by Gov. Martin O’Malley at the Board of Public Works on Jan. 7, when he made $400 million in cuts to balance this year’s budget.

Brinkley said this 2% trim will allow the new cabinet secretaries to assess the best places to make cuts. But Deschenaux said that approach doesn’t allow the legislature to see where the departments are cutting.

“You need to see what you’re doing,” he said.

Cuts in local aid

The fiscal briefing also contained the first detailed accounting of state aid to local governments (page 37). The biggest cuts in promised funding occur in the three large jurisdictions that did not support Hogan in the November election — Baltimore City ($26 million), Montgomery County ($31 million) and Prince George’s County ($44 million).

“Some of these education cuts scare me,” said Del. Ben Barnes, D-Prince George’s, saying they could represent a loss of 600 teachers.

But Montgomery and Prince George’s, despite the cuts, do see small net increases in their aid. Montgomery gets $11 million more than this year (1.3%), and Prince George’s gets $34 million more (2.9%). Baltimore City gets $40 million less (-3.3%).

Counties that overwhelmingly supported Hogan have real net reductions in their state aid. These counties include Allegany, $.7 million, 0.7%; Calvert, $3 million, 2.9%; Carroll, $6 million, 3.5%; Cecil, $1.8 million, 1.4%; Frederick, $4.5 million, 1.6%; Harford, $3.1 million, 1.2%; and Washington, $3.3 million, $1.6%.

State aid to all the counties, the bulk of it for schools, goes up only $30.5 million, 0.4%, to $7.051 billion. This is some of the “tough medicine” Hogan talked about after the election.

Brinkley said the budget plan is “all about a conversation” and represents the start of a dialogue with the legislature on spending.

  • Vidi

    Other than the piggyback tax gimmick (a shame), I don’t see much blood letting overall. Quite a tame budget. Maybe Year 2 will be the true test.

  • DCRussell

    So Deschenaux “called a
    proposed 2% across-the-board, unitemized cuts “a very dangerous approach
    to budgeting” that sets “a bad precedent.” And the years of O’Malley/General Assembly/Deschenaux increasing deficits, almost without limit, despite constantly rising taxes, was not a bad precedent? What’s the matter–is Deschenaux upset because someone else is proposing a more honest budget than what got passed on his watch?

    And Deschenaux seems unhappy that Hogan’s “approach doesn’t allow the legislature to see where the departments are cutting.” Seems to me that the legislature has had years of opportunity to be fiscally responsible and determine what cuts should be made. But they chose to shirk their responsibilities and not manage honestly or effectively.

    • TaurusPT111

      They want more money to spend. And they are not going to get it. That’s what is ticking them off.

      • Prudent

        Deschenaux was all in agreement with taking 100 of millions from the state pension fund that is already billions in the red. He needs to reanalyze his precedents before he criticizes a more responsible cut across the board. I say that every individual agency budget is scrutinized now at the middle of the fiscal year and if the agency has a non justifiable surplus over 50% for the remainder of the year, take that amount. There are likely many departments in many agencies that have to spend a surplus at the end of the fiscal year

  • TaurusPT111

    It’s about time Maryland tried to be fiscally responsible. Larry, we elected you to fix our state, so don’t be shy about bypassing Annapolis and taking your message straight to the people who elected you when the libs start their hand wringing about not getting the full candy jar instead of the half full jar you are offering.

  • mahatchma

    Why the legislature meet is beyond my comprehension. Bills are written, signed into law and nothing happens – even with laws that show some intelligence in their makeup. Consider the requirement to use headlights when windshield wipers are in use, or indicate when changing lanes, or obey the mandate to use headlights when crossing the Bay Bridge. If the police actually ticketed and fined the large number of offenders against these laws, which are apparently intended to make us safer, then the budget shortfall might be resolved with pain only to those who deserve it.

  • lancette

    A two-percent spending cut plan does not strike me as a bad idea in a state where we need to start tightening the belt. It actually strikes me as impossible that agency heads couldn’t find two percent to cut. Even in well run programs, there are always dollars floating away somewhere. Perhaps Democrats could respond with a call for the same reduction to be accomplished through more targeted, specific cuts to specific programs that still meet the governor’s goal. This is what we expect our officials to do in Maryland — work together and figure it out.