State Budget and Fiscal Issues

States Striving To Shore Up Rainy Day Funds

Barbara Zektick State Budget and Fiscal Issues

Most states have not replenished their rainy day funds to where they were before the Great Recession, reports the Pew Charitable Trusts. Only 18 states ended fiscal 2016 with enough funds in their rainy day reserves and general fund ending balances to cover more days’ worth of operating costs than before the economic downturn. (Maryland was not one of them.)

However, for the first time since the downtown, more than half of the states ended fiscal 2016 with larger rainy day funds as a share of operating costs than before the recession.

Maryland finished fiscal 2016 with about 19 days’ worth of operating costs in its rainy day fund. Rainy day funds equaled $832 million, which amounts to about 5.2 percent of spending. Our state finished fiscal 2007 with 37 days’ worth of operating costs, with $1.4 billion, or 10.1 percent of spending – but that was a particularly strong year. From fiscal 2002 to fiscal 2005, the fund covered 17-18 days’ worth of operating costs, and amounted to 4.6-5 percent of spending. Visualize the data here.

 

From Pew’s analysis of data provided by the National Association of State Budget Officers (NASBO):

Reserves in rainy day funds—also called budget stabilization funds—were the largest component of states’ financial cushions in fiscal 2016, accounting for nearly $2 of every $3 of total balances. The importance of rainy day funds in helping to gird against budget uncertainties has grown since the recession. Slow and uneven tax revenue growth has limited most states’ ability to match their large ending balances in the year before the downturn. Rainy day funds typically provide a stable cushion from year to year, while ending balances are more volatile and harder to predict.

New Jersey and Nevada have no money saved, according to the report.

Download the data to see individual state trends. Visit Pew’s interactive resource Fiscal 50: State Trends and Analysis to sort and analyze data for other indicators of state fiscal health.

Mayor Pugh: Hogan Will Invest Millions to Curb Violence in Baltimore City

Kevin Kinnally County Budgets, County News, Finance and Procurement, Intergovernmental Relations, News You Can Use, State Budget and Fiscal Issues

Baltimore City Mayor, Catherine Pugh on Thursday said that Governor Larry Hogan plans to allocate millions of dollars to help curb violence in Baltimore City. Governor Hogan plans to spend $9 million to fund new police department positions, advanced technology, and programs for at-risk youth.

According to The Baltimore Sun,

Amelia Chasse, a spokeswoman for Hogan, said that the “administration is committed to working with the city on additional state support, which is a process that is still ongoing and has not yet been finalized.”

“The governor, the mayor, and Baltimore City officials have had ongoing, productive conversations — including a meeting among top state and city law enforcement officials this past Monday — that have resulted in immediate state investment in targeted programs, including $2 million in funding for technology in patrol cars and 16 state parole and probation officers to assist Baltimore City Police,” Chasse said.

Mayor Pugh is committed to reducing crime in the City. The Mayor has written a crime plan, but it has not yet been released to the public.

According to Mayor Pugh, the city must develop a multi-pronged approach, which will include de-escalation tactics and the implementation of crime fighting programs that are practical, efficient, and affordable.

Governor Hogan and Mayor Pugh met last month, discussing a wide-range of topics, including curbing violence in the City. Both Hogan and Pugh said the talks were informative, frank, and productive.

Read the full article for more information.

Unpaid State Officials Sue Treasurer, State

Barbara Zektick Employee Benefits and Relations, General Assembly News, Government Liability and Courts, State Budget and Fiscal Issues

Dennis Schrader and Wendi Peters, Governor Larry Hogan’s secretaries for Health and Planning, respectively, have filed suit in Anne Arundel County Circuit Court against State Treasurer Nancy Kopp and the State of Maryland seeking a declaratory judgment on their right to receive their paychecks, reports Bryan Sears for the Daily Record.

Governor Larry Hogan withdrew his appointees’ nominations during the legislative session, preventing the State Senate from voting on their confirmations. The General Assembly passed budget language that prohibits the use of State budget funds to pay the salaries of certain secretaries and other high-ranking officials who did not receive Senate confirmation during the 2017 session. In response to the budget language, State Treasurer Nancy Kopp announced last month that should would not pay the secretaries at the start of fiscal 2018 year on July 1.

The Daily Record  quotes Governor Hogan:

The attorney general gave both the legislature and our office the opinion that they’re legally serving in their positions so it would be illegal for us not to pay them.

Sears further reports:

The attorney general, in two different advisories, said Hogan could legally reappoint secretaries whose names he withdrew before a vote. But in a separate advisory, the office said that the language in the budget barring the payment of Schrader and Peters was also legal under the Maryland Constitution.

From the Letter To Senator Ferguson from the Office of the Attorney General (June 27, 2017):

The reappointment of Ms. Peters and Mr. Shrader after the close of session raises significant constitutional concerns because the practice of making recess reappointments of withdrawn nominees tends to circumvent the Senate’s constitutional confirmation role. But in the absence of any constitutional provision addressing the practice, our Office’s position has been that a governor may reappoint a withdrawn nominee after session so long as the nominee was not rejected by the full Senate. As for the budgetary restriction, I believe it is a constitutionally permissible exercise of the Legislature’s power to impose conditions on the expenditure of appropriated money, particularly as applied to the positions of Secretary and Acting Secretary.

Although a reviewing court might disagree with one or both of these conclusions, it likely would not resolve the reappointment and budgetary issues in a way that would allow a governor to systematically circumvent the Senate’s confirmation role. Instead, it would either invalidate the reappointment of the withdrawn nominees, or, more likely, conclude that the budgetary restriction is a constitutionally valid means of ensuring the integrity of the Senate confirmation process. Thus, even if Ms. Peters and Mr. Shrader were valid recess appointments, they may not receive a salary as Secretary, Acting Secretary, Deputy Secretary, or Assistant Secretary as of the budgetary restriction’s July 1 effective date.

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Frustrated U.S. Senators Press Feds On FBI Headquarters Plan

Kevin Kinnally Business Affairs, County News, Economic Development, Finance and Procurement, Intergovernmental Relations, Labor, News You Can Use, Planning and Zoning, State Budget and Fiscal Issues

A month after federal decision-makers scrapped the government’s decade-long plan to close the Federal Bureau of Investigation’s deteriorating headquarters in downtown Washington and replace it with a new building in the Maryland or Virginia suburbs, U.S. Senators from both parties yesterday expressed frustration at officials from the General Services Administration. Senators lamented that millions of dollars had been wasted on the failed effort, and complained that they were blindsided by the decision.

The General Services Administration, the government’s landlord, has been working with the FBI for more than a decade on a plan to trade away the J. Edgar Hoover building in Washington, D.C. to a developer. In return, the developer would be responsible for the majority of the costs to develop a new headquarters on a modern site.

After spending more than $20 million on its plan, which would have relocated the FBI to Landover, Md., Greenbelt, Md., or Springfield, Va., the General Services Administration said it was canceling the project because Congress had not appropriated enough funds.

According to The Washington Post,

No senator appeared more frustrated by the process than Democrat Benjamin L. Cardin of Maryland, the state that would be home to two of the proposed sites. Cardin said the GSA had received seven viable development plans from three developers and pointed out that Congress had granted the agency approval to pick a new headquarters location. Congress has already appropriated more than $800 million toward construction and approved the selling of the Hoover Building.

“We’ve got to figure out a way to move this quicker than saying it’s another four, five or six years to get this done,” Cardin said, “because the FBI can’t wait and the taxpayers demand that we be more efficient than this.”

Officials from Maryland and Virginia have competed for years to land the new headquarters. But the rest of Congress had repeatedly expressed concern with the huge price tag.

The project would have had a significant economic impact on Maryland and, more specifically, Prince George’s County, where two potential sites were being considered. The FBI has about 11,000 employees, which would have made it one of Maryland’s largest employers.

State and Prince George’s County officials had spent years trying to convince the FBI to relocate. The University of Maryland, College Park and the University of Maryland, Baltimore planned to launch a joint national security academy. Gov. Larry Hogan pledged $317 million in infrastructure and traffic improvements to accommodate a new headquarters in Greenbelt and $255 million for a Landover site.

Read the full article for more information.

Uncertainty As Large State Structural Deficit Looms

Barbara Zektick State Budget and Fiscal Issues

The State budget faces a structural deficit that grows to over a billion dollars in just four years. It is unclear how State officials will close that gap in fiscal 2019 or beyond. 

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Last December in acknowledgement of “slower than anticipated economic growth” resulting in a state structural deficit totaling $377 million in fiscal 2018 and $1.2 billion in fiscal 2022, the state’s Spending Affordability Committee (SAC) recommended that the fiscal 2018 budget reduce the structural deficit by 50 percent.

It did.  It did not go quite as far as the Governor’s proposed budget, which would have addressed 100 percent of the fiscal 2018 structural deficit of $377 million with an estimated $47.0 million in structural surplus. But the General Assembly’s budget still went significantly farther than the SAC’s recommendations, reducing the deficit by $331 million, or 88 percent.

The Committee also recommended that the Administration:

…prepare a detailed report with specific proposals for achieving structural balance in fiscal 2019. The report should specify actions to the program level. The report should be submitted to the Spending Affordability Committee, the House Appropriations Committee, and the Senate Budget and Taxation Committee no later than July 1, 2017.

The Spending Affordability Committee only makes recommendations, which do not carry the force of law. The General Assembly passed budget language requiring the Department of Budget and Management complete the report by July 1, 2017.

The Baltimore Business Journal reports that the Administration has declined to provide the report. The coverage quotes a letter sent by Department Secretary David Brinkley:

…The Department of Budget and Management would like to advise you that the administration’s response to your request will be submitted as part of the fiscal year 2019 budget proposal on Wednesday, Jan. 17, 2018. … We believe that the July 1 deadline for the submission of this report conflicts with the executive budget process established under Maryland’s constitution.

 

Your One-Stop-Shop for Federal Advocacy on County Issues

Michael Sanderson NACo and Federal Issues, State Budget and Fiscal Issues, Taxes and Revenues, Transportation and Public Works

NACo has released a timely “Summer Advocacy Toolkit” for use by county officials engaging on federal issues. Inside are links, quick summaries, and talking points on a wide range of topics relevant to county governments. Additionally, from the pdf document, users can search relevant committee membership to help target their messages.

A few quick selections from the NACo guide follow:

On Municipal Bonds:

• A fundamental feature of the first federal tax code written in 1913, tax-exempt financing is used by state and local
governments to raise capital to finance public capital improvements and other projects, including infrastructure
facilities that are vitally important to sustained economic growth.

• Between 2003 and 2012, counties, localities, states and state/local authorities financed $3.2 trillion in infrastructure
investment through tax-exempt municipal bonds.

• If municipal bonds were fully taxable during the 2003-2012 period, it is estimated that the financing for the 21 largest
infrastructure purposes would have cost state and local governments an additional $495 billion of interest expense. If
the 28 percent cap were in effect, the additional cost to state and local governments would have been approximately
$173.4 billion.

• For 2012, the debt service burden for counties would have risen by $9 billion if municipal bonds were fully taxable over
the last 15 years and roughly $3.2 billion in the case of a 28 percent cap. Americans, as investors in municipal bonds
and as taxpayers securing the payment of municipal bonds, would have borne this burden.

• The municipal bond tax-exemption represents a fair allocation of the cost of projects between federal and state/local
levels of government. Through the use of tax-exempt municipal bonds, state and local governments invested 2.5 times
more in infrastructure than the federal government.

• Tax-exempt bonds are vital for infrastructure, justice and health needs because counties own and operate 45 percent
of public roads and highways, own almost a third of the nation’s transit systems and airports, own 961 hospitals,
manage 1,943 health departments and own the vast majority of the nation’s jails.

On Infrastructure:

NACo believes that counties should be recognized as major owners of transportation infrastructure in any potential
package presented by the administration. Key funding and financing measures must include all of the following:

• Preservation of Tax-Exempt Status of Municipal Bonds

• Dedicated Funding for locally owned infrastructure

• Policies to provide an Environment for Innovative Financing

The Toolkit also includes direct links to other NACO resources, like this concise “one-pager” on State and Local Tax Deductibility (aka SALT).

Counties to Congressional Delegation: Keep Us In Mind

Michael Sanderson County News, NACo and Federal Issues, Sequestration, State Budget and Fiscal Issues, Taxes and Revenues, Transportation and Public Works

With a major wave of high-impact legislation under consideration by Congress, and the state and local effects of them drawing substantial attention from counties across the state, MACo has sent a letter to the Maryland congressional delegation. The essential message: keep county governments, and other Maryland specific impacts, in mind as you consider these many weighty measures.

MACo’s letter, approved by the Legislative Committee during its meeting this week, discusses potential effects of the proposed federal budget, health care reform, and tax law changes. In each case, MACo highlights concerns on behalf of county government services, or peculiar to the State of Maryland, urging our Senators and Representatives to weigh these local impacts in their considerations.

From the letter:

The Maryland Association of Counties (MACo), representing the 24 subdivisions providing primary local public services to all Marylanders, urges your caution when considering policy changes currently before Congress.

Both in fiscal affairs and health care policy, the potential exists for an untoward and unfair shift of responsibilities and burdens to local governments. We hope you will keep these local perspectives in mind as you are called to vote on major policy matters in the months ahead.

…

As always, MACo and our county officials stand ready to help you and your staff with any matters where a local perspective could serve you well. We hope that through our conferences and events, and direct contact with you, this federal-local partnership can serve both our mutual interests, and those of our shared constituents.

Maryland Ranks 46th out of 50 States for Fiscal Health

Kevin Kinnally Finance and Procurement, News You Can Use, State Budget and Fiscal Issues

Florida comes out on top, with its government finances in the best shape compared to other states, in a new ranking of state fiscal health that university researchers published this week.

At the bottom of the list, with the worst-off state fiscal situation: New Jersey.

The Mercatus Center at George Mason University released the 2017 edition of its “Ranking the States by Fiscal Condition” report on Tuesday. The study, now in its fourth year, uses 13 metrics to analyze state finances based on five categories:

  • Cash solvency: Does a state have enough cash on hand to cover its short-term bills?
  • Budget solvency: Can a state cover its fiscal year spending with current revenues, or does it have a budget shortfall?
  • Long-run solvency: Can a state meet its long-term spending commitments? Will there be enough money to cushion it from economic shocks or other long-term fiscal risks?
  • Service-level solvency: How much “fiscal slack” does a state have to increase spending if citizens demand more services?
  • Trust fund solvency: How large are each state’s unfunded pension and healthcare liabilities?

On the basis of its fiscal solvency in the five categories listed above, Maryland is ranked 46th among the US states for its fiscal health.

According to The Mercatus Center,

On a short-run basis, Maryland holds between 55 percent and 148 percent of the cash needed to cover short-term obligations. Revenues exceed expenses by 1 percent, and net position improved by $88 per capita in FY 2015. On a long-run basis, Maryland’s net asset ratio is −0.5, pointing to the use of debt or unfunded obligations. Long-term liabilities are 94 percent of total assets or $6,554 per capita, which is higher than the average in the states. Total primary government debt is $17.55 billion, or 5.2 percent of state personal income. On a guaranteed-to-be-paid basis, unfunded pension obligations are $88.41 billion, or 26 percent of personal income. OPEB is 3 percent of personal income, which is better than the average in the states.

Information used to come up with the rankings was pulled from 2015 state comprehensive annual financial reports.

The study was authored by Eileen Norcross, program director for the State and Local Policy Project at the Mercatus Center, and Olivia Gonzalez, a research associate for the State and Local Policy Project and a Ph.D. student at George Mason University.

A full copy of the report and related spreadsheet data can be found here.

State Budgets: First, The Bad News

Barbara Zektick County News, State Budget and Fiscal Issues

Those who follow state finances might well have been enthralled by the tales of several states without budgets as of fiscal 2018 – particularly Illinois, which went 736 days before it actually passed a budget, making the front page of the New York Times. 

state_budget_july_0

But those finance fiends in glass houses shouldn’t throw stones, writes Tax Policy Center’s researchers and staff. We could be next.

First the bad news. Illinois was the only state to go two years without a budget but it was far from the only state to miss a fiscal deadline. According to the National Conference of State Legislatures, 10 states failed to pass budgets by the start of their fiscal year (July 1 in most states) and six of those states still have not done so. …

And the problem goes well beyond blown deadlines. State revenues are not meeting projections across the country despite a growing economy. In fiscal 2017, general fund revenue came in below forecast in 33 states. Income tax revenue is lower than anticipated in part because people may be delaying some capital gain realizations while they wait for federal tax cuts. Sales tax revenue is also sluggish, mostly because people are consuming more untaxed services and making more online purchases (which are technically taxable, but if the seller doesn’t collect the sales tax buyers rarely pay the use tax). ….

Meanwhile, states must contend with the rising costs of many government services. Underfunded public pensions, a big problem in Illinois and several other states, complicate the fiscal politics. And some states have made those problems worse by passing tax cuts they could not afford.

These trends are causing budget headaches in all 50 state capitals. …

Adding to these ongoing state budget problems: the federal government. Congress has not passed any major legislation yet, but many of the ideas on its agenda would kick huge budget questions to the states. How do states respond if Congress cuts the federal contribution to Medicaid? What if Congress repeals the state and local tax deduction? And many of the president’s proposed budget cuts—such as food stamps—would land hard on the states.

Great. So what’s the good news?

….so back to Illinois. That state exacerbated its own budget problems in 2015 when it let a temporary personal and corporate income tax hike —used to plug a previous budget hole— expire. Without the revenue, the state struggled to pass a budget. So this year, the legislature roughly restored the higher tax rates, and made them permanent this time. …

While few politicians want to raise taxes, many states are learning that tax cuts are no panacea. State economic development depends on good infrastructure and workforce development. Families and employers want quality schools. And numerous private and public groups (including local governments) depend on state funding.  …

[L]egislators are starting to recognize fiscal realities, including the state of the national economy and ongoing efforts to cut federal spending. Increasingly, state lawmakers are taking tough, but prudent, votes even at the risk of defying an executive of their own party.

Nothing says “good news” like increasing taxes.

In 9 States, FY18 Arrived Without Finalized Budgets

Barbara Zektick County News, State Budget and Fiscal Issues

As of 3:45 p.m. on the first day of the new fiscal year in 46 states, New Jersey, Maine and Illinois all faced at least partial government shutdowns after their legislatures failed to pass new budgets – and Washington and Alaska “managed eleventh-hour deals to avoid a similar fate,” reports NPR. 

According to the National Association of State Budget Officers (NASBO), the legislatures in as many as nine states had failed to finalize budgets as of July 1: Connecticut, Delaware, Illinois, Maine, Massachusetts, New Jersey, Oregon, Rhode Island, and Wisconsin. The governors of Delaware and Massachusetts signed temporary spending bills, allowing government services to continue operating.

According to the Chicago Tribune, ideological divides on economic policy, combined with revenues coming in below forecasted levels in as many as 33 states, drove many of the budget disputes.

New Jersey 

Today marked the third day of the government shutdown in New Jersey, where 35,000 workers are furloughed and non-essential government services – including the beaches – remained closed. From Bloomberg: 

Senate President Stephen Sweeney, a Democrat, told reporters in Trenton that he didn’t expect budget votes in either house Monday.

The impasse was linked to the refusal by Assembly Speaker Vincent Prieto, a Democrat from Secaucus, to post a bill compelling Horizon Blue Cross Blue Shield of New Jersey to give the state $300 million annually from its surplus account. Horizon, which administers the state’s Medicaid contract, has said the company’s $2.5 billion cushion is a safety net while Christie has said it’s excessive for a private not-for-profit health insurer that grew on taxpayer funding.

The governor has vowed not to sign a budget unless the Horizon bill also comes to his desk. Prieto says the bill is being rushed.

As Christie ordered special legislative sessions over the weekend, and again today, he and his family were photographed yesterday from an aircraft by the news site NJ.com as they relaxed at Island Beach State Park outside a vacation home owned by the state for the governor’s use. The photos ignited social media, with Twitter users saying it was unfair to block access to a public park while the state’s highest elected official could continue to enjoy it, particularly during the weekend lead-up to the Independence Day holiday on July 4.

Illinois
Defying Illinois Governor Bruce Rauner, the Illinois House voted by veto-proof majority on Sunday night to raise Illinois income taxes from 3.75 percent to 4.95 percent, and corporate income taxes from 5.25 percent to 7 percent – finally leading to the passage of a companion budget bill through the House. From Illinois’ News-Gazette, as of last night at 9:20 p.m.:

The Senate still must vote on the $5 billion income-tax increase, perhaps as early as today, but Democrats hold a greater majority in the Legislature’s upper chamber, and it is expected to pass with less drama than the House’s more than two hours of debate that included shouting, jeering and some tears.

One preliminary estimate said that the tax increase would cost the typical married couple with two children who have an adjusted gross income of $100,000 a year and pay $5,000 in property taxes about $1,100 more annually.

Once it is approved, the tax increase would be retroactive to July 1.

Maine

A stalemate between Republican Governor Paul LePage and Democratic lawmakers threatens passage of Main’s $7.055 billion, two-year budget, reports CNBC. From that coverage from this morning:

After House Republicans in Maine voted to reject a compromise deal on Saturday, the Bangor Daily News reported that Republican Minority Leader Ken Fredette presented a $7.1 billion plan he said could get the governor’s approval, but some Democrats noted that was costlier than the rejected compromise.

A spokeswoman for the governor could not be reached for comment on Sunday.

“The Speaker thinks it is unconscionable that Maine doesn’t have a budget, especially leading into the holiday weekend,” Mary-Erin Casale, a spokeswoman for Democratic House Speaker Sara Gideon, said Sunday morning.

If the budget committee meeting on Sunday in Augusta agrees on a deal, the measure would go to the full legislature.

LePage has insisted on a budget with deeper spending cuts than those contemplated by lawmakers and has promised to veto any spending plan that raises taxes.

The stalled budget proposal would have repealed a measure that voters approved in November to impose an additional 3 percent income tax on state residents who earn more than $200,000 a year. But it contained a 1.5 percent increase in the lodging tax, Casale said, while increasing funding for public education by $162 million.

State police, parks and all offices responsible for collecting revenue will operate during the current shutdown, the state’s first since 1991.

Wisconsin

Wisconsin’s budget has failed to pass because of disputes over transportation funding. From the Chicago Tribune:

Dwindling collections from the state’s gas tax and vehicle registration fees have left a $1 billion hole in the two-year, $76 billion spending plan Wisconsin was supposed to have in place Friday.

Republican Gov. Scott Walker wants to borrow $500 million and delay some projects to save money. Some Republicans want to borrow even more and the GOP discussed a new heavy truck fee to raise $250 million, but that appears to be dead along with any discussion of raising the gas tax with Walker considering running for a third term next year.