Unexpected drop in Medicaid costs helps O’Malley budget, but there’s more borrowing too

Budget Highlights 2014By Len Lazarick

Legislative analysts told lawmakers Monday that Gov. Martin O’Malley’s proposed budget contains a number of fiscally responsible moves they had recommended in previous years and an unexpected $200 million drop in the cost of Medicaid health care. But it also extends for another five years $411 million in borrowing to replace cash from special funds used to finance other programs.

Legislators from the House Appropriations Committee and the Senate Budget and Taxation Committee had the most questions during the 2013 Department of Legislative Services Fiscal Briefing about the transfer from the real estate transfer tax to fund other programs. Over the next five years, $411 million will be shifted to the general fund, replaced with money from 15-year bonds with interest.

“Many of us thought it would be a one-time thing,” said Del. Charles Barkley, D-Montgomery.

It is “a one-time thing five times in a row,” quipped Warren Deschenaux, the legislature’s chief fiscal analyst. “This is one of the major devices to get to where [the governor] got,” reducing the structural deficit while adding to reserves and the rainy day fund.

“It just doesn’t seem to be a good way to fund our operating budget,” Barkley said.

Medicaid assumptions critical

The assumptions on Medicaid funding were “critical” to balancing the operating budget, Deschenaux said.

This fiscal year’s Medicaid spending has been adjusted to significantly lower spending due to “lower enrollment, changing case mix, favorable utilization trends” and reductions in rates for managed care, said analyst Mary Clapsaddle.

A major expansion of Medicaid to people at 138% of the poverty level is planned in fiscal 2014, but the entire cost is being picked up by the federal government under the Affordable Care Act. Other parts of the ongoing health insurance program are funded 50-50 by the state and federal government.

Deschenaux praised O’Malley’s plan for “cleaning up” $94 million in funding problems that legislative services had listed in previous budgets. This include $53 million in funds for Temporary Assistance to Needy Families (welfare) that were never going to come from the federal government.

“I have never seen so much fiscal responsibility in one bunch,” said Deschenaux. “They done good.”

About The Author

Len Lazarick


Len Lazarick was the founding editor and publisher of MarylandReporter.com and is currently the president of its nonprofit corporation and chairman of its board He was formerly the State House bureau chief of the daily Baltimore Examiner from its start in April 2006 to its demise in February 2009. He was a copy editor on the national desk of the Washington Post for eight years before that, and has spent decades covering Maryland politics and government.


  1. David Eaton

    Instead of increasing the budget by 4.3% (while not increasing taxes…which is a good thing), why not take that 4.3% and reduce our MD taxes by 4.3%?

  2. hungrypirana

    Page 48, “Use of Bond Program for Operating Budget Relief” (see link above) shows the state has, is and will pay (in material part) for its operating budget with borrowed money for 11 consecutive years (2010-20). I can’t tell if the analysis shows annual borrowings are accretive. If so, then the state will be depending materially on borrowed money to both meet operating needs and do all the good things the governor is touting.

  3. abby_adams

    Raiding the high real estate tax fund to pay for other programs then BORROW the $411M to fill the hole. The same old Annapolis tricks to “balance the budget”? Patting themselves on the back for the feds picking up part of the tab for Medicaid expansion is yet another exercise in magical thinking. Unless I’m mistaken don’t we also pay those federal taxes so freely handed out by Washington? And the legislative shell game continues…

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