BRFA Section 13 Has Deep, Long Term Implications

Governor Larry Hogan, in his first budget, is proposing a number of budget actions to resolve the FY 2015 and FY 2016 shortfalls and address the state’s structural budget deficit. One provision, intended to reduce out-year expenditures, would have implications for years to come by capping formula increases in statutorily mandated programs. Efforts to constrain spending have been tried in the past, but rejected by the General Assembly.

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 2015 (BRFA) has been introduced this year as HB 72.

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. In past years, the BRFA was the vehicle for 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. This year’s BRFA is freezing funding adjustments in education aid and funding many local aid programs – health departments, police aid, and disparity grants at the fiscal 2014 level.

Small Section – Big Impacts

Amidst this 32-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 13 of HB 72, located on page 31 of the bill, is worthy of its own attention.

SECTION 13. AND BE IT FURTHER ENACTED, That, notwithstanding any other provision of law, for fiscal year 2017 and each fiscal year thereafter:

(a)   For any appropriation that is required by statute, the percentage funding increase over the previous fiscal year may not exceed the percentage by which the projected total General Fund revenues for the upcoming fiscal year exceed the revised estimate of total General Fund revenues for the current fiscal year, as reflected in the December report of estimated State revenues submitted by the Board of Revenue Estimates to the Governor under § 6–106(b) of the State Finance and Procurement Article, less 1%.

(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 and §§ 8–310.3, 8–317, 8–406, 8–415, and 3 23–503 of the Education Article; or

(2) the State’s employer contribution to the State Retirement and Pension 5 System required under § 21–308 of the State Personnel and Pensions Article.

As reported by the Baltimore Sun,

Hogan is recommending permanent reductions that would stretch far into the future in an attempt to eliminate the gap and end the cycle of shortfalls.

Per-resident funding for local libraries would be reduced until 2025. Spending for community colleges would be held to 1 percent less than the growth in the state’s general fund. This year, for example, the general fund grew by 2.4 percent; under Hogan’s plan community colleges would see no more than a 1.4 percent increase.

Local aid programs with inflationary adjustments would experience the same funding limitations.

Warren Deschenaux, the Director of Policy Analysis with the Department of Legislative Services commented during a fiscal briefing that this provision “would in effect prevent any formula-driven program from automatically claiming a bigger percentage of state funding than the previous year.”

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

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