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Legislators ask Hogan to reduce spending, cut deficit

ANNAPOLIS — A bipartisan panel of state legislators on Wednesday approved spending recommendations that include a request for incoming Republican Gov. Larry Hogan to reduce ongoing spending by at least $350 million in his first budget.

Instead of recommending a cap on the percentage of growth of the state operating budget, the 21-member joint Spending Affordability Committee recommended that Hogan take steps to decrease ongoing spending in an effort to better align revenue with the cost of state programs.

Sen. Roger Manno, D-Montgomery County and co-chair of the committee, said the final recommendations represented “a two-year solution to the state’s structural deficit.”

The recommendation is roughly equal to a 3.5 percent limit on the growth of the fiscal 2016 budget, according to Del. John L. Bohanan Jr., D-St. Mary’s and co-chair of the committee.

Hogan will deliver his first budget on Jan. 23, just two days after taking the oath of office.

Bohanan said Hogan could ultimately choose to increase the amount of cuts to ongoing spending if he wanted.

“He can do 100 percent if he wants,” said Bohanan.

Since 1983, the committee has only failed to make a recommendation to limit budget growth once. Legislators have made requests to reduce the size of the structural deficit in each of the last four years, including last year, when they also asked that budget growth be limited to 4 percent.

Federal budget reductions and a shutdown in 2013 have adversely affected the state economy. Additionally, employment grew by less than 1 percent in 2013, while wage growth slowed from 3.2 percent in 2012 to less slightly less than 1 percent in 2013. In the first six months of this year, personal income was up 2.3 percent while wage and salary income grew by 1.5 percent.

Legislative budget analysts estimate that without any reductions, baseline spending in fiscal 2016 would increase by 6.2 percent and outpace incoming revenue. Without action, the structural budget deficit is projected to reach $1.5 billion by fiscal 2020.

On Monday, the Board of Revenue Estimates issued a downward revision totaling $271 million in state revenues over the current and fiscal 2016 budget year. The declining revenue forecast comes three months after the same panel said revenues over the two-year period were $405 million less than projected.

This week’s write-down boosted the structural budget deficit for those same two years, which had been nearly $900 million, above the $1 billion mark.

Gov. Martin O’Malley and the Board of Public Works approved more than $80 million in budget reductions in July, just two days into the current budget year.

On Wednesday, the legislative panel also asked the Office of the State Comptroller to explain the process it uses in making revenue projections through the Board of Revenue Estimates.

Manno said he was concerned about a process that has resulted in the need to revise down its own revenue projections in recent years.

In addition to its recommendations on the operating budget, the Spending Affordability Committee also recommended that Hogan limit planned borrowing in the coming budget to slightly less than $1.1 billion. Another committee recommended that capital budget spending be limited to nearly $1.2 billion, but budget analysts said that figure was “no longer affordable.”

“The level of debt you authorize this year has an effect on the payments you have to make going forward,” said Warren Deschenaux, director of the Office of Policy Analysis within the Department of Legislative Services.

Without the reductions in the coming year, debt payments would exceed the legal limit of 8 percent of state revenue by fiscal 2018.

The committee rejected a proposal by Del. Adelaide C. Eckardt, R-Eastern Shore and an incoming senator, to trim an additional $50 million from the borrowing recommendation.

“We’re pushing up there and it would be prudent to go ahead and reduce it,” Eckardt said.

But some Democrats argued against Eckardt’s proposal and said the initial $75 million was sufficient.

Del. Kumar Barve, D-Montgomery County, said the state’s budget situation “is not nearly as dire” as past years.

“Our response has always been to make cuts that are prudent but not excessive,” Barve said.

“I believe removing an additional $50 million would be an over-reaction,” Barve said, adding that if the borrowing recommendation were wrong, “the only harm that could come of this would be two or three years down the road.”

Robert R. Neall, a former state senator who is serving as Hogan’s senior budget adviser, said the increased costs of borrowing under Gov. Martin J. O’Malley will likely consume “every general fund dollar we can scrape together for the next couple of years.

“That debt service line is pretty scary to me,” Neall said.