DLS Briefs Budget Committees On Budget Big Picture

The budget committees of the General Assembly received their annual fiscal briefing from the Department of Legislative Services (DLS) on January 23, 2017. This briefing provides a comprehensive overview of the Governor’s fiscal plan, the State’s economic and revenue outlook, a detailed look at the Governor’s FY 2018 proposed budget, aid to local governments, Transportation Trust Fund outlook, the capital budget, and an outlook for Maryland’s economy in light of Federal changes.

The Quick Look at Fiscal 2018 Budget shows that although the Governor’s spending plan produces a structural surplus of $38 million in fiscal 2018, it does not address a structural deficit over a five-year forecast period of $1.2 billion by fiscal 2022. State DLS Executive Director Warren G. Deschenaux described the budget as:

…just another kick the can down the road budget… we ought to be doing better.

Highlights of the Potential Legislative Issues include:

  • The Administration’s spending plan (large out-year structural gaps and cash reserves at 6.0% of general fund revenues) leaves the State vulnerable to expected federal cost containment actions including hiring freezes, spending reductions, and the repeal of the Affordable Care Act.
  • Direct education aid for Baltimore City declines by $38.7 million due to enrollment declines, increased wealth, and the loss of a one-time fiscal 2017 declining enrollment grant. Direct education aid to Calvert, Carroll, Garrett, and Talbot counties declines by a combined $5.6 million.
  • Most funding mandates enacted during the 2016 session are repealed or deferred, saving the State $96.2 million in fiscal 2018. …
  • No bond capacity is reserved for local initiatives.
  • The Transportation Trust Fund (TTF) forecast does not adequately account for operating expenses, which results in the capital program being oversubscribed. The fiscal 2018 capital program includes $53.0 million in grants, identified as part of the Administration’s plan to increase the Highway User Revenues (HUR) funding to local governments. Similar grants were funded at $25.0 million in fiscal 2016 and 2017. The TTF forecast also reserves nearly $700.0 million not included in the Consolidated Transportation Program from fiscal 2019 to 2022 to increase the share of HUR going to local governments.

The Governor’s proposed mandate relief caps statutorily-required state funding — including many programs supporting counties (other than for education) — at projected General Fund growth minus 1 percent, regardless of what the formula in law currently dictates. Deschenaux described this measure as “weak tea,” informing the committees that these expenditures only amassed 4 percent of the total budget – not enough for this measure to address meaningfully the structural deficit problem.

Useful links from the Briefing document:

Economic and Revenue Outlook

Operating Budget

State Aid to Local Governments

Transportation 

  • The six-year State capital program in the Maryland Department of Transportation (MDOT) fiscal 2017 through 2022 Transportation Trust Fund (TTF) forecast is $1.5 billion lower than in the prior year’s six-year program. Lower estimated revenue attainment, primarily motor vehicle fuel tax revenue, accounts for about half the decrease with higher projections for debt service and departmental operating expense spending accounting for the other half of the reduction in the capital program.
  • Despite the reduction made to the State capital program, the net income debt service coverage ratio is at MDOT’s administrative minimum level of 2.5 for the final three years of the forecast.
  • MDOT’s forecast reserves a total of $747 million to phase in an increase in the amount of Highway User Revenues (HUR) going to local governments. Increasing the statutory percentages of HUR going to local governments by the amounts reserved in MDOT’s forecast would require a further reduction in bond issuances (and the State capital program) of $1.33 billion over the forecast period in order to maintain the 2.5 minimum debt service coverage ratio.

Capital Budget

Federal Outlook for the Economy and Budget is Uncertain 

Appendices