Maryland’s Budget Package – The Need for a Reconciliation Bill

Each year (at least during times of any significant fiscal distress) the Governor’s budget bill is introduced as part of a “package.” Since the budget bill itself is Constitutionally limited in a number of ways (the bill may only appropriate funds and restrict their use, it may not make statutory changes or even temporarily override statutory limitations, and it may not have any effect beyond its own fiscal year), the budget bill is accompanied by an omnibus bill to address the various statutory and uncodified changes to law necessary to implement its many provisions. This year is no exception — the Budget Reconciliation and Financing Act of 2011 (BRFA) has been introduced this year as HB 72.

As is often the case, the BRFA bill is complex and expansive. The 30-section bill is 64 pages in length, and following expected changes by both the House and Senate (in that order, as by tradition the House is expected to move the budget first this year in an alternating pattern) it may well expand to twice that length. Much of the legislative consideration on the BRFA begins and ends with a practical understanding that its passage is a necessary part of enacting a constitutionally-required balanced budget.

The BRFA, unlike the budget bill itself, is not restrained in its breadth or effect. The bill may make changes to funding requirements, in some cases ones that have profound long term effects. Just last year, the BRFA bill was the vehicle for two tremendously controversial and dramatic local government proposals: the Senate-passed effort to shift teacher pensions to local government employers, and the permanent elimination of 97% Highway User Revenues to nearly every county government. This year, the BRFA bill includes, among its many components, the Administration’s proposal to reform state and teacher pension benefit and contribution structures, along with uncodified direction to direct those “savings” for the near term.

Small Section – Big Impacts

Amidst this 64-page bill, and its plethora of provisions resides one section with the potential for tremendous future effect. With much of any year’s budget debate focusing primarily on that year’s balance, permanent or long term effects tend to receive less attention. However, Section 19 of HB 72, located on page 62 of 64 of the bill, is worthy of its own attention.

SECTION 19. AND BE IT FURTHER ENACTED, That, notwithstanding any other provision of law, for each of fiscal years 2013 through 2016:

(a) Except as provided in subsection (b) of this section, the Governor is not required to include an appropriation in the budget for any program or item in an amount that exceeds the fiscal year 2012 appropriation for that item or program as approved in the State budget for fiscal year 2012 as enacted by the General Assembly.

(b) Subsection (a) of this section does not apply to:

(1) funding required for State aid to public elementary and secondary education as provided under Title 5, Subtitle 2 or § 4–121, § 4–122, § 6–306, § 8–310.3, 22 § 8–317, or § 8–415 of the Education Article;

(2) the State’s employer contribution to the State Retirement and Pension System required under § 21–308 of the State Personnel and Pensions Article;

(3) any appropriation to the Maryland Agricultural and Resource–Based Industry Development Corporation established under Title 10, Subtitle 2 of the Economic Development Article; or

(4) any appropriation required to the Revenue Stabilization Account of the State Reserve Fund under § 7–311 of the State Finance and Procurement Article.

So – plain English, this section says that other than a few specially protected set-asides (primarily education and pension funding, plus the state’s own “Rainy Day Fund”) no funding formula or other required appropriation has any effect for the next five years. “Flatline funding” is the new law.

Local Government Effects

While an analysis of the entire breadth of this provision is beyond the scope of this writing, a quick look at the county government stake in this decision reveals a great deal of local support at stake:

Local Health Departments received approximately $70 million in state formula funding as recently as FY 2008. Due to recent cutbacks, aided by legal interpretations, this funding has been slashed to $37 million in FY 2012. Section 19 would obviate any debate about the proper statutory funding levels, and simply reset funding at the $37 million for the foreseeable future.

Local Jails, used to receiving state reimbursement for state-sentenced prisoners in their populations, saw those funds eliminated for FY 2010, due to budget cutbacks – a reduction of more than $40 million that year. The new formula put into law required the State to provide a narrower funding amount — targeted to inmates with sentences between 12 and 18 months. However, even that more limited funding has been completely eliminated in recent budgets (recent legislation has spawns over this difficult budget cut). Section 19 would effectively zero out local jail reimbursements for five more years.

Police Aid support for local law enforcement agencies was reduced by 35% (a reduction of about $20 million) by the August 2009 decisions of the Board of Public Works, as part of mid-year budget balancing efforts. That cut was carried over into FY 2011 and FY 2012 by the 2010 BRFA. Section 19 would extend that reduction for the subsequent five years.

Local Roads and Bridges are already crippled with a permanent funding reduction to about 3% of prior levels, due to previous BRFA legislation. This year’s Section 19 would seemingly ensure that even if the amount of funds reaching State coffers through the motor fuel tax and titling taxes, the amount required to be appropriated to county and municipal governments under the Highway User Revenue formula would be suspended, with FY 2012 funding levels becoming the de facto funding formula for five more years.

Any number of other areas of the budget have sought and received the “certainty” of a formula or other statutory guide to each year’s appropriation — and their effect would essentially be suspended for the foreseeable future. Overall, since Section 19 sets the new funding “floor” based on the final enacted appropriation for FY 2012, any such entity that faces a one-year budget cut for FY 2012 (a fairly common event in Maryland state budgets) would essentially see those cuts be carried over for five years under Section 19.

Section 19 is only 17 lines of text as it appears in the BRFA bill, and it sits on page 62 of the mammoth document. Few will read that far, nor comprehend these broad effects. But this small section may have some of the deepest and longest-lasting impacts of any fiscal policies contemplated in Annapolis this session.