Governor Larry Hogan yesterday unveiled his fiscal 2022 spending plan. Overall, the $49.35 billion budget proposal — a 2.2 percent decrease over the current year’s budget — leaves a closing balance of $264.4 million at the end of fiscal 2021 and $191.8 million at the end of fiscal 2022.
The Rainy Day Fund ends fiscal 2022 with a balance of $991 million (5.0 percent of general fund revenues). Combined cash balances at the close of fiscal 2022 of $1.2 billion represent roughly 6.0% of general fund revenues. With a structural budget gap of about $76 million, the budget adheres to the Spending Affordability Committee (SAC) goal of a gap of no more than $700 million.
Overall spending declines in fiscal 2022 as temporary federal CARES Act funding is exhausted and federal Supplemental Nutrition Assistance Program (SNAP) expenditures decline as the economy recovers and benefit enhancements expire. The Governor’s Budget does not include any funds from the December federal COVID-19 stimulus package.
The Governor’s Budget provides $8.8 billion in aid to local governments — $216.6 million over fiscal 2021, the vast majority of which is in the form of education aid, which increases by $195.9 over fiscal 2021.
SDAT Cost Shift
Governor Hogan’s Budget Reconciliation and Financing Act of 2021 (BRFA) revives an attempt (unsuccessful in previous years) to shift costs of the State Department of Assessments and Taxation (SDAT) onto county governments.
HB 589 / SB 493 proposes to increase counties’ reimbursement of SDAT functions, including costs of real property valuation, business personal property valuation, and information technology. Since 2013, counties have reimbursed the State for 50 percent of these costs, but the BRFA proposes to increase the local share to 60 percent in fiscal 2022, which would swell to 90 percent by fiscal 2025 and thereafter.
Disparity Grant Funding
The Disparity Grant Program provides noncategorical State aid to low-wealth jurisdictions for county government purposes. Disparity grants address the difference in the abilities of counties to raise revenues from the local income tax, which for most counties is one of their larger revenue sources.
The Governor’s proposed budget fully funds the formula-driven fiscal 2022 allocation of $148 million for the Disparity Grant Program.
Local governments – and, specifically, counties – maintain the lion’s share of the state’s roads and bridges. Unlike most other states, in Maryland, local governments own and maintain 83% of the roads
SB 516/HB 807 of 2018 assured that most counties will see an increase in their total transportation funding by more than 40 percent, all the way through fiscal 2024.
The motor vehicle fuel tax, motor vehicle registration fees, a share of the motor vehicle titling tax, and a share of the corporate income tax are designated as Highway User Revenues (HUR). The state allocates a portion of these revenues to the counties and municipalities to help fund the construction and maintenance of local roads. Baltimore City receives 8.3% in fiscal 2021. The remaining counties and municipalities receive 3.2% and 2% respectively in fiscal 2022.
Grants are provided to fund local transportation services for elderly and disabled persons, with 60% of the money distributed equally among the counties and Baltimore City and 40% based on the distribution of the elderly and disabled populations. In addition, funding is included to help defray the cost of providing paratransit services required under the federal Americans with Disabilities Act.
State funding of Maryland’s community colleges is based on the Senator John R. Cade funding formula which was established as law in 1996. The Cade funding aims to provide community colleges with predictable support for operations and to help maintain affordable tuition rates.
The intent of the Cade formula is that community college costs be divided into equal thirds between the state, local government, and student tuition/fees. Unfortunately, due to budgetary constraints over the years, the Cade funding goal has typically not been met.
The original intent of the Cade funding formula was for the State to provide 29% of community college funding by 2012. However, the state has adjusted the formula several times over the past ten years – delaying its commitment to fully fund the Cade formula.
The Governor’s Budget funds community colleges through the Cade program at $263.5 million. While this is a 5.5% increase compared to fiscal 2021 funding, it is actually less than would have been dictated by the Cade funding formula (by approximately $26.6 million).
In the proposed BRFA, the standard formula is amended to limit the growth of community college funding. Beginning in fiscal 2023, funding for community colleges is limited to the fiscal 2022 appropriation plus the annual percentage increase in General Fund revenues above the estimated annual increase in General Fund revenues, which is calculated by the Board of Revenue Estimates.
The Department of Legislative Services last year estimated that a similar BRFA provision would cut overall funding for community colleges by approximately $100 million by fiscal 2025.
The Governor’s Budget allocates $74.6 million in police aid to local governments, including $43.7 million in direct local law enforcement grants.
Local Health Departments
Core funding to local health departments totals $60 million.
The fiscal 2022 capital budget provides $833 million for school construction projects.
Fiscal 2022 begins a new initiative to substantially meet the state’s school construction needs over four years. The Built to Learn Fund initiative will provide $2.2 billion in new school construction funding. The proposed new investment is in addition to the $1.4 billion in GO bond funding for school construction in the state’s 5-year Capital Improvement Program. Over the next five years, the proposed state investment will total nearly $3.6 billion.
The governor’s budget will use a portion of casino revenues to fund 30-year revenue bonds totaling $2.2 billion for school construction projects.
By custom, the House and Senate move the budget bill in alternate years – the House moves the budget in odd-numbered years, and the Senate moves the budget in even-numbered years. For example, the budget bill will start in the House this year.
Stay tuned to Conduit Street for more information.
Proposed Budget Documents (fiscal 2022):