Gov. Larry Hogan outlined a state budget proposal Tuesday that he said would reduce spending next year without cutting services or increasing taxes.
In a news conference at the State House, the Republican governor outlined broad details of the plan that will be presented to the Democratic-controlled General Assembly on Wednesday.
"We actually spend less than last year's budget while still funding our priorities," he said.
A Hogan spokesman said the governor's proposal would cut spending from the state's $17.1 billion general fund by $20 million. The overall budget, which includes money Maryland receives from the federal government, would come to $43.5 billion. The current year's budget is $42.3 billion.
Hogan painted a cheery picture of his spending plan despite the state's more than $500 million revenue gap. By law, Maryland's budget must be balanced. Asked what he cut to reduce spending, the governor said "almost nothing."
"It sounds too good to be true, but it is true," he said. "There are no serious cuts."
Hogan said his budget for the year starting July 1 fully funds the state's education aid formulas for K-12 and community colleges and also boosts higher education funding, allowing state colleges and universities to hold tuition increases to 2 percent.
K-12 spending, which generally increases each year as enrollment grows, would reach a record $6.4 billion under the governor's proposal.
He noted that the budget also pays for essential safety net services, such as Medicaid reimbursement for treatment of mental health patients.
Hogan is paying for state programs and services by tapping into the state's Rainy Day Fund of about $1 billion. Sen. Richard S. Madaleno Jr., one of the lawmakers briefed about the budget over breakfast on Tuesday, said the state would spend $177 million from that fund.
Eric Shirk, spokesman for the Department of Budget and Management, said the Rainy Day Fund still would contain at least 5 percent of general fund revenue. That is the level that bond rating agencies expect a AAA-ranked state such as Maryland to maintain. The rating allows the state to borrow money at low interest rates.
The governor said he is not proposing transferring money from other funds. Hogan has consistently criticized that method of balancing the budget, which former Gov. Martin O'Malley, a Democrat, used extensively during the recession. For example, O'Malley dipped into the Transportation Trust Fund to fully fund education.
In addition to summarizing the budget, Hogan outlined plans for legislation that would affect future spending practices. One would curb the growth of spending mandates. The other would bar using temporary revenue spikes to fund recurring expenses.
Miller said it's up to the governor to offer a plan to reduce mandated spending. According to Hogan, 83 percent of the state's discretionary spending — funding education, for example — is mandated by law.
"He can propose what he wants to propose and cut what he wants to cut," Miller said. "Are you going to have a bill cutting public education? I doubt that very much. I doubt if you're going to have a bill cutting health care."
Miller said state employees would not get step raises under the governor's proposal.
To balance spending and revenue, Hogan will submit a budget reconciliation act — legislation usually necessary in years when there is a revenue shortfall. The act generally includes such measures as one-time relief from spending mandates.
Lawmakers who attended the morning budget briefing predicted that battle lines will be drawn over what lawmakers call the Budget Reconciliation and Financing Act, or BRFA.
"That's where the action is," said Del. Maggie McIntosh, the Baltimore Democrat who heads the House Appropriations Committee. "It really is, in this instance, a beautiful, beautiful budget until you get to the BRFA and find out: 'Oh, that's the rest of the story.'"
McIntosh expressed skepticism about the rosy picture painted by the governor.
"We've got a budget that's smaller, we didn't increase any taxes and yet we increased funding for education, for public safety, for economic development," McIntosh said. "So where did those increases come from and how did it translate into a smaller budget?"
"People are suspicious because it seems too simple," said Republican Sen. Andrew A. Serafini of Washington County, who also attended the briefing.
Administration officials said the spending cuts reflect decreased demand for such programs as Temporary Cash Assistance for The Poor.
Hogan did acknowledge that he will propose not funding several programs the General Assembly adopted last year to help Baltimore. Spending on the programs is mandated by law.
McIntosh said after-school programs and neighborhood development initiatives are on the chopping block.
Hogan is proposing to fund one of the mandated programs he claims as his own — demolition of blighted city properties. But he criticized lawmakers for adopting $519 million in new spending requirements last year, after he proposed fewer mandates.
The governor said Maryland benefited from belt-tightening in his first two budgets.
"While many other states face crippling budget shortfalls, we are in much better shape than we would have been," he said.
Madaleno, a Montgomery County Democrat, saw an irony in Hogan using Rainy Day Fund money to balance the budget.
"It's interesting that the Republicans were very opposed to Governor O'Malley ever touching the Rainy Day Fund," he said.
But Sen. George Edwards, a Garrett County Republican who serves on the Senate Budget & Taxation Committee, emphasized the positive news.
"They're going without raising taxes, no layoffs, funding education to what the formulas dictate on both operating and capital," he said.
Details of Hogan's proposals to change spending practices were not released, but lawmakers tend to look askance on changes that would restrict their discretion or enhance gubernatorial powers. The legislature can amend the governor's budget to cut spending but cannot increase it.
Sen. Edward J. Kasemeyer, chairman of the Budget & Taxation Committee, said he would have to see the bills before taking a position on them. But the Howard County Democrat said Hogan's proposal last year to curb future mandates was "very restrictive."
Baltimore Sun reporters Ian Duncan, Pamela Wood and Erin Cox contributed to this article.