Local Governments – Already The Hardest Hit Part of the State Budget

The “great recession” of recent years has clearly taken a toll on governments – as the economy weakened, tax revenues receded, just as demand for many public services grew. While Maryland currently seems better off (by most indicators) than the nation at large, the weakened economy still remains a drag on government budgeting.

Here, we seek to put the changes in the state’s budget into some context, with an eye toward the role that local governments have played in state budget resolution. Our clear conclusion is that no other major area of the state budget has been depleted in the way that local government (excluding education) has been. And, of course, the proposed budget for FY 2013 with its proposed shift of pension costs onto local governments only accelerates this dramatic disparity.

2008 – 2013 Comparison

A fair timetable for comparisons appears to begin with FY 2008, up until the current FY 12 budget, and the proposed budget plan for FY 2013. The starting point of FY 2008 was the last state budget essentially unscathed by the sudden economic drop in the subsequent autumn and winter months. This timetable also has a more subtle advantage, that it will omit the temporary use of federal recovery funds for many programs, which could otherwise have the effect of distorting the state’s general fund support for various programs.

One note here – to argue more strongly for a county-centered view, we surely could begin the clock earlier than FY 2008. In the 2007 special session, the General Assembly enacted several laws reducing county aid and depleting county revenue sources – but for sake of a more narrowpolicy argument, we exclude those effects here (not that they do not still harm county bottom lines).

Separating State Budget Into Categories

For this purpose, we will look at the calculation of “State Funds” — broad enough to include the various special funds still supported by Marylanders, but removing the ups and downs of federal funding that sometimes have a distorting effect. (Note: A comparable review of the state’s general fund only would reveal a similar bottom line)

For FY 2008, DLS breaks out spending fairly thoroughly here, in the January 2009 fiscal briefing (see the first column of the page numbered 74).

And the comparable chart is included as an appendix to this year’s fiscal briefing document, showing the information for the FY 12 budget in progress, and the FY 13 budget as proposed by the Governor.

From these charts, we will try to extract the three largest pieces from the state-funded budget – namely education (here including K-12, community colleges, and libraries), entitlements, and state agencies (which amounts to essentially everything else).

Separated for contrast is state support for local governments – including funds for local roads and bridges, police aid, county health departments, program open space, and a variety of lesser programs. (Since the most recent rounds of county cuts have taken the form of simply sending counties invoices rather than withholding/reducing aid, these items are separated out but still shown as part of the practical effect on local governments) Among the major pieces of the state-funded budget, there is no comparison at all on which area has been hit the hardest of all:

State Funds         FY 2008    FY 2012    FY 2013     Change
(general & special)

Education           5,464.9    5,988.9    6,296.8   +  831.9

Entitlements        2,796.3    3,949.8    3,913.6   +1,117.3

State Agencies     11,584.9   12,953.4   13,354.8   +1,769.9

Local Gov't Aid       973.5      430.0      512.5
-less SDAT shift                 (34.3)     (35.3)
-less pension shift                        (239.1)
                      -----      -----      -----
Local Gov'ts Total    973.5      395.7      286.1     -687.4

This analysis helps to explain the county government perspective — state budget reconciliation has already devastated local government budgets more than any other major element of the state’s budget, and massive new costs shifts only add to this budgeting approach. MACo opposes the shift of teacher pensions as part of the state’s budget resolution.

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