Spending ‘mandates’ may drive Md. legislative session’s budget debate

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Concerns over budget deficits driven by hundreds of millions in lower-than-expected revenues has some lawmakers and Gov. Larry Hogan hoping this is the year the General Assembly will consider reforms to mandated state spending.

Lawmakers and the first-term governor will enter their third session together in about a week. Staring them in the face will be revenue shortfalls approaching $1 billion stretching from the current year through fiscal 2019. Lower revenue projections are likely to prime debate over Hogan’s desire to provide more flexibility when it comes to so-called mandated spending formulas.

“Right now, mandates hit every area of state government,” said Del. Nic Kipke, R-Anne Arundel County, House minority leader and member of the joint legislative Spending Affordability Committee. “What I hope will happen is there will be a recognition that these formulas force the state budget to grow year after year at rates that are unrealistic.”

Details of Hogan’s fiscal 2018 budget, the general fund portion of which is expected to weigh in just under $17.2 billion, have yet to emerge. The general expectation is that it will reflect an economic picture that is less optimistic than a year ago.

The governor, through the Board of Public Works, trimmed more than $80 million from the current year’s spending plan. The November action came after it was announced that revenue would be higher than for the previous year but $250 million lower than originally projected.

“We have to look at spending ,” said Del. Maggie McIntosh, D-Baltimore City and chairwoman of the House Appropriations Committee. “I’m still in the camp where mandated spending isn’t a problem.”

McIntosh said in years where it is a problem, the governor and legislature can always temporarily ease mandates with a budget reconciliation bill.

“So where’s the mandate?” McIntosh asked.

Lawmakers left Annapolis at the end of the 2016 session essentially declaring victory over years of projected structural budget gaps.

“We left the session last year having balanced the budget and leaving $400 million in reserves,” said McIntosh. “We really thought we had provided sufficient cash for whatever would have come.”

But in the fall there were signs that revenues, while growing, were not going to grow at the rate predicted.

First, neighboring Virginia closed out its budget year $266 million below its revenue projections.

By August, Maryland officials were warning of similar impacts on the horizon here.

State government continues to have a spending problem in as much as expected expenditures — projected at about 5 percent — will outpace the 3.6 percent revenue growth predicted for the same period, according to numbers presented to the legislature by Warren Deschenaux, executive director of the Department of Legislative Services.

In October, the legislature’s top budget analyst called on lawmakers to “get real” about ongoing spending gaps.

“It requires, perhaps, an unnatural quantity of discipline to avoid being optimistic,” Deschenaux told the joint Spending Affordability Committee. “If we’re going to avoid this sort of ‘Groundhog Day’ without Bill Murray experience, we just have to get real.”

He called on lawmakers to look at what drives budget spending, but he added some of that review could also include looking at the mix of current state revenues and possibly even new ones.

Talk of new revenues often centers on new taxes and fees. Hogan campaigned on a promise to not implement new taxes.

Maryland’s state constitution requires a balanced budget — a spending plan that when passed balances spending and projected revenue. When those revenues fall short, the spending plan must be reduced either through Board of Public Works action or via a supplemental budget bill that reconciles spending and revenue and can sometimes temporarily ease mandated spending requirements.

“Both of these ways of dealing with budget gaps are irresponsible,” Kipke said. “It’s better to come up with a formula that more consistently reflects the realities of our economic situation. It should be the legislature that solves it because it was the legislature who created these spending formulas.”

“It’s better to come up with formulas that reflect the realities of our economic situation,” Kipke said.

Hogan and Budget Secretary David Brinkley have been consistently critical of the mandated spending formulas they say ties the hands of the governor. The most recent outlook on revenue emphasizes that need to ease mandates, Brinkley says.

Last year, Hogan proposed easing those requirements in times of economic difficulty.

The governor’s proposal would have limited mandated spending growth in years when the state revenues aren’t expected to increase by more than 2 percent over projections made the previous December.

Only 86 of 150 mandated spending requirements would have been affected, the governor’s office said. K-12 education, state pensions, the state rainy day fund and payments on state bonds would be exempted.

But the bill also sought to bind the hands of the legislature. Any new mandated spending would trigger a requirement to offset the amount by reducing other required formula spending by an equal amount.

An advisory from the attorney general said the requirement on the legislature was not legally enforceable.

“The revenue picture shows why meaningful mandate relieve is important,” Brinkley said following the release of updated revenue projections in December. “It shows why we introduced meaningful mandate relieve last session. And it shows why the legislature needs to adopt meaningful mandate relief in the upcoming session.”