Budget and financial perspective – Conduit Street

As the legislative session of 2022 approaches, MACo is profiling some important issues that should gain attention in the work of the General Assembly. Here we have an overview of Maryland’s budget and financial outlook.

Maryland’s Constitution requires a balanced budget: total estimated revenues must equal or exceed total appropriations. The budget should also reflect any estimated revenue surplus or deficit at the end of the previous year.

The Maryland Constitution prohibits the General Assembly from increasing any budget item or adding new items to the budget proposed by the Governor for any government agency except the judiciary and the operations of the General Assembly it -same. The only exception is that it can increase the budget if it enacts a new revenue stream to fund additional items – a rare occurrence.

In addition, the General Assembly cannot transfer funds from one agency to another. Thus, in practice, the General Assembly can only recommend cuts in the budgets of state agencies recommended by the governor. Once a budget is adopted by the General Assembly, it becomes law and cannot be amended or opposed by the governor.

As is customary, the House and Senate move the budget bill every other year – the House moves the budget in odd years and the Senate moves the budget in even years.

State revenues exceed expectations (Big Time)

As previously reported on Conduit Street, the Board of Revenue Estimates voted this month to again increase revenue projections for fiscal 2022 to $ 21.6 billion, an increase of $ 495 million from September estimates. In addition, the Council adjusted the official revenue forecast for fiscal year 2023 upward from $ 543 million to $ 22.8 billion.

This latest revision follows actions by the Council in September, posting FY2022 revenue of $ 995 million and predicting $ 1.37 billion in additional revenue for FY2023. This came days after the Maryland closed the books for fiscal 2021 with a general fund balance of $ 2.5 billion.

In total, state budget writers and policymakers have around $ 6 billion in unanticipated income as they develop the state budget for fiscal year 2023.

What is driving all this?

The huge fund balance – the result of much larger than expected income growth, mainly due to an influx of federal stimulus funds, as well as a significant increase in personal and business income and consumer spending – is the largest in the history of the state.

The Department of Legislative Services presents this question in its annual compilation of thematic papers:

General fund revenue for fiscal 2021 was above the estimate of $ 1.7 billion, or 8.9%. Current general fund income exceeded the estimate by $ 1.69 billion, or 9.0%. General fund income totaled $ 20.8 billion in fiscal 2021, which is an 11.8% increase over fiscal 2020, while current income increased by 9.9 % during fiscal year 2021.

The top three sources of revenue all exceeded the estimate by significant amounts: $ 903 million for personal income tax; $ 397 million for sales tax; and $ 323 million for corporate tax. Together, they represent 95% of the overrun.

How does the governor want to spend the record budget surplus?

In October, Governor Larry Hogan released a five-point framework for spending $ 2.5 billion on budget surplus funds.

The governor’s plan includes strengthening the state’s rainy day fund, tax breaks for retirees and working families, improving Supplementary Nutritional Assistance Program (SNAP) benefits for out-of-town beneficiaries. low income and a potential increase in pay / benefits for government employees.

What does the Maryland Spending Affordability Committee have to say?

This month, the Maryland Spending Affordability Committee approved several recommendations to help guide the state’s budget decisions in the coming months, including increasing the state’s Rainy Day Fund to 9% of revenue, paying off unfunded debts and prioritizing one-off construction costs.

After assuming a 5% balance in the Rainy Day Fund, the estimated cash balances will total $ 4.3 billion at the end of fiscal 2022. This surplus provides the government with a unique opportunity to invest resources to meet unmet needs and priorities.

Recognizing that the fund balance is one-time in nature, the committee recommends against making continuous investments with excess cash. Instead, ongoing needs can be met under the large structural surplus projected for fiscal 2023 and beyond.

Recommendations include addressing long-standing deferred maintenance and facility renewal needs at facilities operated by the Department of General Services (DGS) and state parks and allocating $ 200 million to public higher education institutions and regional higher education centers for maintenance and deferred installations. renewal.

In addition, the committee recommends investing in pay-as-you-go capital (PAYGO) to fund past commitments and to achieve one-off goals such as improving cybersecurity and accelerating the replacement of obsolete IT systems.

Learn more about Maryland’s budget and income outlook in the DLS Issue Papers.

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