Will Md. education spending reform plan add up?

Maryland’s state budget will be inextricably linked this year — and perhaps for years to come — to the latest once-in-a-generation proposal to dramatically boost education funding.

The legislature returns to Annapolis for the start of the 2020 session Wednesday with an expected budget surplus and modestly optimistic projections of $115 million in additional revenues for the coming budget year.

But the recommendations of the Kirwan Commission, a 10-year plan, that would pump $4 billion annually (not including increases due to inflation) once it is fully phased in.

“We are going to fully fund the first four years and make sure the first four years are a success while laying down a foundation for the rest of the 10-year plan,” said incoming Senate President William “Bill” Ferguson, a Baltimore Democrat and former teacher.

Proponents say the funding infusion is needed over the next decade to restore Maryland’s deteriorating educational system and address inequities and that the economic benefits will one day offset the costs.

How to pay for it remains an open question.

This article is part of The Daily Record's coverage leading up to the Annapolis Summit, an event that marks the start of Maryland's legislative session.

Read articles in the series:
Dec. 9: Md. legislative leadership changes seen as a boon for Baltimore region | Dec. 16: HBCU supporters eye legislative solution to protracted litigation | Dec. 23: New chair is mum, but lawmakers expect Md. Senate judicial panel will tilt left | Dec. 24: Advocates, legislators hope exoneree cases spur compensation plan

“We will fund it out of our general funds, or whatever we deem is the appropriate level of funding for a world-class education we’ll do,” said Ferguson, a former teacher. “The question is whether it has a crowd-out effect on other expenditures.”

Detractors, including Republican Gov. Larry Hogan, say the plan is too expensive and will require massive tax hikes to pay for it. Others say it will require cuts to state spending and that the most expensive portions of Kirwan will phase in as state budget deficits are projected to widen.

Currently, budget analysts project the state’s $450 million budget deficit in fiscal 2021 will grow to $1.2 billion in fiscal 2023. That is before taking into account increased education spending. Under one scenario that tries to smooth out implementation of Kirwan, the deficit would remain about the same but widen to $1.4 billion in 2024 and nearly $1.6 billion 2025.

But should the legislature choose to implement Kirwan as recommended by the blue ribbon commission, that budget deficit would be more steep, starting with about $750 million in the coming year and approaching $2.5 billion in four years.

Add to the mix concerns about a looming economic downturn and how local governments will pay their share of the Kirwan costs and it’s easy to see there will be a lot of work that needs to be done in 90 days.

State Budget Secretary David Brinkley, a member of the Board of Revenue Estimates and the Kirwan Commission, urged lawmakers to “be very cautious about building any new ongoing spending into the budget.”

 ‘Best-case forecast’

Lawmakers return to Annapolis with the state in a slightly better fiscal position than initially expected.

The fiscal 2019 budget year, which ended June 30, closed with a surplus and that is expected to carry over into fiscal 2020. When the current budget year ends, legislative budget analysts project a nearly $500 million surplus.

“For fiscal ‘21 the outlook isn’t quite as bright but still better than you’ve seen in recent years,” said David Romans, fiscal and policy analysis coordinator for the Department of Legislative Services.

That projection includes a nearly $206 million cash shortfall and an overall $419 million structural deficit.

Analysts warn the projections do not take into account scenarios involving increased spending for education under the Kirwan recommendations.

“This is kind of a best-case forecast in some respects,” Romans said. “At some point, things are going to slow down a little bit, and it will get worse. So we think it’s important that you try to take some action this year.”

In December, the legislative Joint Spending Affordability Committee approved recommendations to eliminate those gaps heading into fiscal 2022, including ending the year with a General Fund balance of at least $100 million and a 6% rainy day fund — 1% more than required by law.

A precedent

In 2002, the legislature passed the predecessor to Kirwan, a $1.3 billion plan recommended by the Thornton Commission. Education advocates and lawmakers now say that plan, meant to address the same inequities in the state’s public school systems, didn’t bring about the promised results.

When lawmakers passed Thornton, only the first year was paid for through the use of money from a state tobacco restitution settlement fund. Legislators in an election year hoped that a new Democratic governor would pave the way for a tax increase to pay for the rest of the plan.

Instead, Republican Gov. Robert Ehrlich was elected. That election, coupled with an income tax cut passed in the previous term and a recession and the increased education spending, led to deep budget cuts for counties and a constant annual shuffling of budget priorities to pay for the Thornton plan.

The election of Hogan in 2014 has left lawmakers wary of tax increases while still needing revenue to pay for Kirwan and at the same time  not neglect other needs. Sports betting — which is likely to pass this session — and recreational marijuana were initially seen as potential sources of additional revenue.

“We are looking at other types of sources,” acknowledged House Speaker Adrienne Jones, a Baltimore County Democrat.

Tax revenues

Hogan has vowed in recent months to block any attempts to pass a tax increase.

“I think there are revenue sources that are viable and out there that we will be considering that do not include an increase in the sales tax rate, that do not include an increase in the income tax rate and do not include an increase in the property tax rate,” said Ferguson.

One possibility being floated is expanding the state’s 6% sales tax to services that are currently not taxed. Some lawmakers hope the proposal would be seen by Hogan as an expansion similar to how online retailers and companies that rent rooms and homes were required to pay online sales and hotel taxes in recent years.

Jones, who was in the House during the Thornton debate, said tax increases aren’t at the top of her agenda. One proposal she has made is an elimination of seldom-used tax credit programs.

Sen. Andrew Serafini, R-Washington and a member of the Budget and Taxation Committee, said eliminating tax credits might net $110 million. But many of those programs have vocal constituencies willing to come to Annapolis and fight.

“Are we really going to cut these things when people come at us with pointy sticks and things?” asked Serafini.

Serafini, is not only the top budget lawmaker for his party but is widely respected among his Democratic peers. He said claims that the first three years are paid for is more smoke and mirrors accounting as lawmakers still have to solve structural deficits as they add to spending on education and other programs.

“What programs are we going to cut?” said Serafini. “And what about the counties? If we say we have paid for our portion, how does that address what the counties have to do?”