Three Things to Watch for in the Governor’s Budget Proposal

Tomorrow, Gov. Larry Hogan is due to release his proposed budget for the state fiscal year that begins July 1. If you’re concerned – as we are at MDCEP – about public investments that help create jobs and build a strong economy, here are three things to keep an eye on as the budget debate goes on.

1. What is the governor cutting?

The governor has said his budget proposal will be $17.1 billion. That’s about $230 million less than what experts at the state Department of Legislative Services (DLS) said is needed to maintain current service levels. And it’s $480 million less than what legislators on the Spending Affordability Committee recommended investing in meeting the state’s needs. That means that under the Governor’s plan some things would be funded at levels below what meets Maryland’s needs.

Where could the money come from? The DLS estimates assumed that state employees would be getting scheduled salary increases, so the governor might be planning to freeze pay. Another option would be to delay replenishing special funds that have been used in prior years to balance the budget, like Program Open Space, which supports Maryland’s parks. Another potential option could include a larger tuition increase at state colleges and universities than the expected 3 percent – which would further limit college affordability and pinch already tight student and family budgets.

Keep in mind, any cutbacks won’t be due to a lack of resources. The governor is planning to put more money into state reserves than is required, rather than investing it in services Maryland needs today.

2. The cost of tax cuts

Last week, the governor said he will introduce a package of tax and fee cuts that will cost about $480 million over five years. The budget will provide more information about how much those policies will cost in the next budget year and how the administration plans to pay for them.

The big question: will providing these tax breaks, at a cost roughly estimated at $96 million for the coming fiscal year, mean additional reductions in funding for essential state services?

3. Investments in construction projects

The Hogan administration has said it wants to cap the amount invested in state construction projects at $995 million per year over the next five years, which is less than the cost of the schools, police and fire stations and other public facilities that the state has scheduled to build over that time period. This will require cutting $1.17 billion from capital projects between fiscal year 2017 and fiscal year 2021.

The governor has said this is necessary to reduce spending. But, because these types of projects are typically financed through bonds, the administration’s approach won’t actually do much to reduce state spending. Investing in state infrastructure is good for our economy, as it supports construction jobs and helps ensure that our residents and businesses have the services they need. So even cuts that might seem to “save” money could be shortsighted.

The governor’s budget is a major step in the annual process of setting the priorities for state investment. The General Assembly has until April 4 to hold hearings and pass a budget. Unlike in most states, the Maryland legislature has limited powers to adjust the governor’s budget. Legislators can reduce allocations, but not increase or move funding. To make those types of changes, they must convince the governor to submit a supplemental budget that includes their desired changes.

MDCEP will provide ongoing analysis throughout the budget process about what is happening with the state’s budget and how it will affect Marylanders.