Confused about what just happened between Gov. Larry Hogan and Democrats in the General Assembly in their fight over the state budget? You’re not alone. The way the state budget works is complicated, and this dispute is taking place in a particularly murky corner of the separation of powers in which the legislature tried to assert its priorities — things like school construction, additional funding for the Baltimore Symphony Orchestra and money to test rape kits — and the governor balked. Here are five things you need to know to make sense of it.
How is the state budget process supposed to work?
The state constitution requires that in January, the governor introduce a balanced operating budget for the fiscal year that will begin the following July 1. That doesn’t mean that projected revenues for the next year have to meet or exceed the spending in the budget — a governor can use whatever extra cash the state has on hand to cover any shortfall. But the state cannot borrow money to fund its operating expenses, like the federal government does. (Nearly all states have the same restriction.)
The legislature then reviews the proposal, and it has the power to cut from the governor’s plan but not to add to it or to move money from one line item to another. Once it approves the budget, the governor does not have the option to veto it. (Things work a little differently with the capital budget, but that’s another story for another day.)
What happened here?
Legislators have, over the years, figured out ways around the limitations on their budget authority. They can’t add money to a governor’s budget plan, but they can create spending mandates for the future. They can also cut spending from a governor’s proposal to free up money in the coming fiscal year, and then authorize him or her to spend it on whatever they want, though he can choose not to spend it at all. The legislature employs that workaround routinely, but it tends to become more contentious when the governor and legislature are of different parties.
This year, the legislature fenced off about $189 million in the general fund in that manner, most of it for school construction. Though there’s been a lot of attention paid to the $1.6 million for the BSO, the funds are generally for non-controversial things like technology upgrades for the Baltimore police and summer jobs for teens.
Last week, Mr. Hogan announced that he would not spend the money, though he would find other ways to support some of the public health and safety initiatives the legislature identified. He did not object to the specific programs the legislature wanted to fund but argued that Democrats were being fiscally irresponsible given a projected $961 million budget gap next year. Democrats say he’s just being petty and partisan.
Governor Hogan’s explanation for holding back the funds doesn’t remotely add up. He said he’s worried about a projected $961 million structural deficit next year. Guess what it’s projected to be now that he’s held off on spending that money? $961 million.
How could this be? The figure he’s citing comes from a Department of Legislative Services calculation of the difference between the projected ongoing revenue for fiscal 2021 and projected ongoing spending in the general fund. (That measure factors out both one-time windfalls and one-time expenses to give a sense of whether the state budget is sustainable.) The money the legislature fenced off is, by definition, a one-time expense. Choosing not to spend it affects how much cushion the state has in its bank account going into next year but doesn’t change the structural situation.
Moreover, as we pointed out last week, Mr. Hogan’s initial budget proposal was larger than the one the legislature passed, including the $189 million, and had the legislature made no changes whatsoever to his plan, the projected structural deficit for fiscal 2021 would have been worse than $961 million.
What happens now?
Governor Hogan says he will find other savings in agency budgets to free up money for some items on the legislature's list, like the Baltimore police technology upgrades, but unless he changes his mind, the BSO and dozens of other programs that might have seen greater support this year will go without. The money Governor Hogan doesn’t spend this year will make it easier for him to balance the budget next year, even if he doesn’t address the structural issues. The conflict could also prompt Democrats to call for changes to Maryland’s budget process to give the General Assembly somewhat greater authority to move funds around in the budget, something that’s allowed in most states. But that would require a constitutional amendment, and Governor Hogan would surely fight it.
What's the big picture?
This conflict comes on the eve of the mother of all fiscal battles in Annapolis, the debate over funding the Kirwan Commission initiatives to improve K-12 education. In May, Governor Hogan released $255 million in fenced-off funds to begin implementing Kirwan recommendations, but now he’s crying poverty over $189 million in spending for other things. If he’s calling Democrats fiscally reckless for pushing him to spend money legislators had already paid for by making other cuts in the budget, imagine what we’re in for when lawmakers start a debate about committing to what would ultimately be billions in additional spending every year. Mr. Hogan has voiced support for the principles of Kirwan but concerns over its cost. His actions this month suggest you shouldn't hold your breath for him to come to the table with a Kirwan funding plan.