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April 13, 2012

What now, after an awkward sine die?

Governor Martin O’Malley on April 10 chided legislative leaders for allowing the “Doomsday” budget cuts to take effect, reducing state spending levels for public schools and higher education on the last day of the 2012 General Assembly session.

More than $500 million in cuts were enacted by lawmakers the night of April 9 after the House and the Senate could not agree on a package of revenue increases and levels of local contributions to teacher pensions required to balance the state’s operating budget.

The cuts to education are “really a damn shame,” O’Malley said as he, Senate President Mike Miller and House Speaker Michael Busch participated in bill signings the day after the session’s awkward finish. Enactment of the Doomsday budget is “pretty much the low point in my experience here,” the governor said.

"We proposed a budget to protect our shared priorities of public safety, quality ed and affordable college,” Governor O’Malley tweeted to constituents. “This does not,” he said, linking recipients to the page of the budget conference committee report that outlines cuts to education and to local governments.

In addition to the disappointment voiced by Governor O’Malley, the “day after” was punctuated with calls by the presiding officers that a special session is needed to correct fiscal problems with the budget that was passed. However, the timing of a special session, should one be called, remains in doubt.

What happened? “We both came up with our own plans,” Miller said in a Tuesday morning interview on WAMU. The budget ultimately proved to be “a complex package that didn’t happen,” Miller said.

He had the votes in the Senate for an 11th-hour budget plan that leaders from both houses had agreed upon, Miller said. “I had the votes in the Senate on each and every thing,” he said. But “in the House, they couldn’t get the votes.”

Hopefully, lawmakers can be called back to Annapolis and “give the governor an opportunity, along with the House members, to get their votes together,” Miller said.

Busch’s account differed. He complained to reporters that the Senate did not send needed tax legislation over to the House before midnight.

Busch said he agrees that the budget needs to be fixed, reported the Baltimore Sun’s Michael Dresser, “but you can’t until you have a plan.”

One lawmaker, Baltimore City Senator Bill Ferguson, expressed surprise that the Doomsday budget was enacted. “We were told it would never come about - the votes for the revenue package were counted, the Senate and House had agreed, the bills were prepared, we just needed to vote,” Ferguson emailed constituents.

“And by midnight at Sine Die last night, we were never given the opportunity to vote,” he wrote. “As a result, at midnight last night the ‘Doomsday’ budget - the unrealistic budget that would never come about - became Maryland's reality.”

As of the transmittal of this State House Update, the governor had not indicated whether or when he might call a special session.

The Doomsday cuts: what are they?

The so-called “Doomsday” budget makes $512.2 million in cuts to proposed state operating expenses, more than half of which comes from reductions in public school funding and other aid to local jurisdictions.

State agency operating funds are cut by $128.8 million, and health and human services absorb another $21.7 million in cuts. Another $25.4 million in cuts would come from eliminating stem cell research funding, and biotech and sustainable community tax credits.

Following is a more detailed summary of “Doomsday” budget cuts:

• Education: Cuts amount to $204.9 million in education aid to the state’s jurisdictions, including $128.8 million by eliminating the Geographic Cost of Education Index, and $70.9 million by reducing the state funding foundation amount from $6,694 per pupil to $6,650.
  
  
• Higher education: $74 million in state funding for higher education is cut, including $38.5 million in public higher education funding and $19.9 million in funding for community colleges. Also eliminated are $11.8 million in Delegate and Senatorial scholarships, and $3.8 million in grants to nonpublic higher education institutions.
   
• Other local aid:  $57.4 million in additional state cuts are borne by local jurisdictions, including $31.6 million in cuts to disparity grants and $20.8 million in cuts achieved by eliminating local law enforcement grants.
  
  
• Tax credits:  The budget cuts $25.4 million by eliminating three important funding incentives for business growth – funding for stem cell research, the biotechnology tax credit and the sustainable communities tax credit.
  
  
• Health and human services: Cuts amount to $21.7 million, including eliminating $15.2 million in provider increases for the Developmental Disabilities Administration, Mental Hygiene Administration, foster care and non-public placements. Another $6.5 million in cuts are made by reducing capacity at Regional Institutes for Children and Adolescents, from which patients, lawmakers presume, can be absorbed in private Residential Treatment Centers.
  
  
• State agencies: $128.8 million in operating funding is cut from state agencies, including $50 million derived from 8-percent reductions in agency operating expenses, $33.8 million by eliminating cost-of-living raises for state employees, $30 million by eliminating 500 positions, and $15 million in savings by increasing state employees’ share of health insurance costs.

Convention Center expansion funding stays in capital budget

The capital budget passed by the General Assembly hours before they adjourned on April 9 includes $2.5 million in preliminary design funding for the expansion of the Baltimore Convention Center.

The budget item grants the funding to the Maryland Stadium Authority, but prohibits its use until a memorandum of understanding is executed between the state Department of Budget and Management, the City of Baltimore and the private developer of the proposed new arena and hotel that is to be connected to the expanded convention center.

The memo of understanding must be submitted to the General Assembly’s budget committees for review. The memo must include preliminary agreements between the parties regarding management and ownership structure of the combined project, preliminary financial commitments and cost-sharing expectations between the state and Baltimore City.

The combined project is a top priority of the Greater Baltimore Committee. This funding is a significant signal of support from the state for this project. The funding requirements provide a reasonable framework for next steps to proceed with the project.

What passed that impacts business?

Following are a few examples of bills passed by the General Assembly that would positively impact the state’s climate for business competitiveness:

• Maryland Innovation Initiative. HB 442, supported by the GBC, promotes technology transfer from Maryland research institutions to the private sector. The legislation would create a pool of grant funding from participating universities and other sources to be potentially awarded to university initiatives and private-sector entrepreneurs to promote the commercialization of university-developed technology.
  
  
• Security Clearances. SB 296, supported by the GBC, offers Maryland companies tax credits to defray the costs related to obtaining clearances, which has been identified as a major barrier to national security operations and to federal contractors.  The bill calls for this tax credit to expire in 2017.
  
  
• Life Sciences Advisory Board.  SB 405, supported by the GBC, would add to the state’s Life Sciences Advisory Board three additional members with executive small business experience in the life sciences.
  
  
• Tax credits for job creation. HB 592 extends until 2027 the law that gives businesses with more than 2,500 employees tax credits for jobs created by expansions in Maryland.

What didn’t happen?

As I noted above, bioscience tax credits and sustainable communities tax credits, both proven highly-effective incentives that have produced significant business development over the years, were eliminated by the Doomsday budget.

Three other key legislative initiatives did not survive the General Assembly session:

• Transportation funding. For the 20th consecutive year, state lawmakers have failed to increase Maryland’s primary source of transportation funding: the gas tax.
  
  A decade of advocacy by the GBC and statewide business leaders to address the growing crisis in funding roads and transit has clearly identified serious issues that block state legislators from acting. They include clashing rural and urban perspectives regarding transit, whether it should be funded by gas taxes, and a demonstrated reluctance to enact any substantial transportation revenue mechanism, much less one that accounts for inflation.
  
  State lawmakers must find a way to resolve these issues if Maryland’s transportation infrastructure – a core pillar of our state’s business climate – is to again be adequately funded.

• R&D tax credit bill. Legislation that would have increased tax credits for research and development expenses, SB 570, which had passed the Senate on March 22 and was heard by the Ways and Means Committee on April 3, did not emerge from that committee.

• Public-private partnerships. Legislation to promote the development of public-private partnerships to bring private-sector resources to bear in meeting the state’s capital project needs, SB 358, endured amendments in both houses. The session ended after the House passed its amended version. The amended bill never got to the Senate for concurrence.

More evaluation and commentary will follow in another post-session edition of the GBC State House Update soon as we continue to review session outcomes and watch for developments that will determine whether a special session will be convened.

Best wishes,

Donald C. Fry
GBC President & CEO

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