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 2012 (BRFA) has been introduced this year as SB 152.

As is often the case, the BRFA bill is complex and expansive. This year’s 23-section bill is 48 pages in length, and following expected changes by both the Senate and the House (in that order, as by tradition the Senate 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 was the vehicle for the Administration’s proposal to reform state and teacher pension benefit and contribution structures, and the shift of 90% of the costs of property valuation to county governments.  This year, the BRFA includes the Administration’s proposal to shift a portion of teacher pension costs to counties and change income tax deductions and exemptions for higher income earners to raise revenue to offset some of the teacher costs on counties and close the State’s structural deficit.

Small Section – Big Impacts

Amidst this 48-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 15 of SB 152, located on page 46 of 48 of the bill, is worthy of its own attention.

SECTION 15. AND BE IT FURTHER ENACTED, That, notwithstanding any other provision of law, for fiscal year 2013 through fiscal year 2017:

(a) Except as provided in subsection (b) of this section and except as otherwise provided in this Act, 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, § 36 6–306, § 8–310.3, § 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; or

(3) 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 Effect

For local governments, should this section take effect, it means that all of the reductions that have been made to local health departments, local jails, police aid, and local roadways, cumulatively totaling approximately $1.8 billion, will remain in effect for the next five years without any action necessary by the General Assembly.

• Local Health Departments will remain at the newly reduced floor of $37 million, down from almost $70 million a few years ago
• Police Aid was cut $2o million in FY 2010, and the reduction was carried through to FY 2012, this provision will continue the reduction for another 5 years
• Local Jail Reimbursements were reduced by approximately $40 million in FY 2010 and the program was changed to a grant program with limited funding – this provision will essentially zero out this funding for the next five years
• Local roads funding has been cut to about 3% of prior levels – this section would suspend even the additional revenues from the motor fuel tax and titling tax that local governments would share in as part of Highway User Revenues making the FY 2012 appropriation the funding level for the next 5 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 15 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.

This small section may have some of the deepest and longest-lasting impacts of any fiscal policies contemplated in Annapolis this session.