When Gov. Larry Hogan announced that he would not spend the $68 million the General Assembly had set aside to fully fund K-12 education or $15 million earmarked for the Prince George's Hospital, his contention was that he would use the money instead to shore up the state's pension system. The legislature had voted a few years ago to make extra payments into the system to compensate for past shortfalls, but it managed to find the money for education, the hospital and some other Democratic priorities by skimping on that commitment, over Mr. Hogan's objections.
The governor's message was a bit misleading, in that he did not actually have the authority to transfer the unspent education and hospital money to the pension system. That money has just been sitting in the state's accounts collecting dust (and a bit of interest). But there was at least a theoretical grain of truth in his stance. The General Assembly also included a "sweeper" amendment in its budget language stipulating that half of any unallocated fund balance at the end of the 2016 fiscal year in excess of $10 million would go into the pension fund, up to $50 million. Based on the estimates at the time, Mr. Hogan's refusal this spring to spend the $68 million for schools in Baltimore and other jurisdictions where the cost of providing education is higher (a program known as GCEI) or the $15 million to help keep Prince George's Hospital afloat would have left a year-end balance of $110.7 million — or just enough to secure that $50 million for the pension system promised by the sweeper amendment.
But in the last six months, Maryland's fiscal situation has gotten markedly better, so much so that leading Democrats on Monday held a news conference to declare victory in the state's long standing battle with an imbalance between ongoing revenues and expenditures. We're not quite ready to hang a "Mission Accomplished" banner from the State House Dome, but recent developments markedly change the calculation when it comes to the pension system, GCEI and the Prince George's Hospital. Based on the latest revenue projections and the Hogan administration's own success at holding down expenses, the state's non-partisan legislative analysts now expect to end fiscal 2016 with $519.7 million. That means Mr. Hogan could spend the $68 million on GCEI, $15 million on Prince George's Hospital, get $50 million more for the pension system and still have more than $375 million in unallocated funds at the end of the year, all on top of $814 million in the state's rainy day fund.
We absolutely agree with Mr. Hogan's caution about loosening the state's purse strings in response to the latest good fiscal news. The Department of Legislative Services has declared the state's structural deficit eliminated before only to see its projections upended by the global financial crisis. And this time, much of the recent revenue increase derives from capital gains taxes, which are volatile, and Amazon.com's establishment of a physical presence in the state, thus requiring it to pay sales taxes. We should remain cautious about establishing new spending mandates — or, for that matter, tax cuts.
But funding GCEI now does nothing to change the state's long-term finances. The legislature voted this year to make full funding of that program mandatory in future years, and Mr. Hogan allowed that bill to become law. Refusing to spend the money now does not help the pension system, nor does it affect the state's structural balance. It's just a matter of how much more money than expected we have rolling around in the state's coffers.
But for the school systems that took a cut as a result of Mr. Hogan's decision on GCEI, it's much more important than that. Carroll County's school system, for example, cut 56 positions this year to address a deficit driven in large part by the governor's decision not to fully fund GCEI. Howard County schools, which lost $2.8 million in GCEI funding, are struggling to keep up with enrollment growth, particularly among lower-income students who typically require more services. Baltimore City's $11 million GCEI cut exacerbated staffing problems that left 170 classrooms without permanent teachers as of late last month. The school year has already begun, but it isn't too late to help improve outcomes for Maryland's students.
If those justifications aren't enough, there is the political reality. That $50 million extra payment for the pension system exists only so long as the General Assembly doesn't vote to take it away. Mr. Hogan now faces a united front between House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller on the GCEI issue — previously, Mr. Miller, a sometime Hogan ally, had held back from calling on him to release the money. Mr. Hogan can safeguard one of his top priorities by advancing one of theirs — not to mention the interests of schoolchildren — while maintaining fiscal responsibility. If he wants, he can even proclaim it possible because of his pro-business stewardship of the state. Or he can stick to his guns despite changing circumstances — and reap the consequences of avoidable conflict.