Maryland’s Budget:

A Moral Document

Benjamin Orr, for the

Democracy and the Social Sector Series,

Association of Baltimore Area Grantmakers

February 13, 2018

Development & Consequences

All MDers should be able

to achieve their full

potential in a healthy

economy that offers a

widely shared, rising

standard of living

Agencies develop recommendations

• Governor provides guidance to agencies

• Summer-Fall

DBM drafts budget

• Incorporates agency feedback, governor priorities

• Through early January

Spending Affordability Committee

Recommends

• Joint legislative committee

• Makes recommendation on how much budget, state workforce should grow

• November -December

Governor introduces

budget

• Mid-January

• Must be balanced

• DLS fiscal briefing Monday after budget introduced

Legislature holds

hearings, edits

budget

• January to April

• May cut, but cannot add

• Can decline to change mandates

• Chambers take turns originating

Legislature approves budget

Agencies implement

budget

• Deadline is one week before Sine Die (mid-April)

• Or go into extended session

• Does not require governor’s signature

• Must be balanced

• Start work on next budget

Operating Budget LifecycleMaryland’s fiscal year starts July 1st

BRE stands for Board of Revenue Estimates Sine Die is the name for the last day of sessionDBM stands for Department of Budget and ManagementDLS stands for Department of Legislative Services

September

BRE

estimates

March

BRE

estimates

After budget

passes, Governor

can cut up to 25%

of individual line

items through

Board of Public

Works

December

BRE

estimates

What does the state

need to invest to

make a difference?Current services vs. actual need

What will the status quo cost? $29.6B

1 Department of Legislative Services, Spending Affordability Briefing, October 17, 2017. http://mgaleg.maryland.gov/Pubs/BudgetFiscal/2017-spending-affordability-briefing-october-17.pdf.

2 DLS, Fiscal Briefing, January 2018. http://mgaleg.maryland.gov/Pubs/BudgetFiscal/2018rs-operating-budget-fiscal-briefing.pdf

$ in millions

$0.0

$1,000.0

$2,000.0

$3,000.0

$4,000.0

$5,000.0

$6,000.0

$7,000.0

$8,000.0

$9,000.0

FY 17 Actual FY 18 Working FY 19 Baseline FY 19 Proposed

State Funds (General Fund + Special Funds)

Status quo misses lots of needs

▪ $2.9 billion to fully fund education (more if we want to increase equity)

▪ 19,000 students on waitlist for state need-based financial aid

▪ Public benefits only bring family income to 61% of the Maryland Minimum Living Level

▪ DC Metro needs another $167 million annually -lots of transit needs in Baltimore too

How do we raise

sufficient revenues to

invest in our future?Does everyone pay their fair share?

$43.6 Billion Operating BudgetFY 2018

General

Funds

$17.2

Special

Funds

$9.0

Federal

Funds

$13.0

Higher

Education

Funds

$4.40

$ in billionsGeneral Fund

Revenue Sources

FY 18

Projection

Individual Income Tax $9,289 million

Sales & Use Tax $4,622 million

Corporate Income Tax $844 million

Other Business Taxes $560 million

State Lottery & Casinos $536 million

Tobacco & Alcohol Taxes $413 million

Estate & Inheritance

Taxes

$216 million

Court revenue $96 million

Other revenues $482 million

9.7% 9.5% 10.3% 9.7%8.5% 8.8%

6.7%

0%

2%

4%

6%

8%

10%

12%

Lowest

20%

Second

20%

Middle

20%

Fourth

20%

Next 15% Next 4% Top 1%

Low income MDers pay greater share

of income in state/local taxesShares of family income for taxpayers under 65

Who Pays? A Distributional Analysis of the Tax System in All 50 States. (2015). Institute on Taxation and Economic Policy. See: http://www.itep.org/whopays/full_report.php

<$24,000>$481,000$44k-

$67k

$111k-

$211k

MDers of color more likely to pay a

greater share of their income in taxes

Maryland Center on Economic Policy. Maryland’s Poor Taxed More Than Rich; Communities of Color Feel Biggest Pinch. March 2015.

0%

5%

10%

15%

20%

25%

30%

35%

40%

Poorest20% ≤$24,000

Second20%$24,000-$44,000

Middle 20%$44,000-$67,000

Fourth 20%$67,000-$111,000

Richest 20% ≥$111,000

White alone Non whites Excluding Asians

Female-headed HH more likely to pay

greater share of their income in taxes

Maryland Center on Economic Policy.

0%

5%

10%

15%

20%

25%

30%

Poorest20% ≤$24,000

Second 20%$24,000-$44,000

Middle 20%$44,000-$67,000

Fourth 20%$67,000-$111,000

Richest 20% ≥$111,000

Total Male-Headed Households Total Female-Headed Households

Business taxes are a smaller share of

MD’s economy than in other states

Ernst & Young, FY14 COST report on state and local taxes

4.6%3.8%

0%

2%

4%

6%

8%

10%

12%

14%

ND VT NM HI WV MT WA FL IL SC DC KY MN USA IA WI CA AK NB MA OH GA UT IN MO CT

MD business gets a $1 return for every 70

cents invested in state and local taxes

Given our needs and

revenues, what has

Governor Hogan

proposed?

$0.0

$1,000.0

$2,000.0

$3,000.0

$4,000.0

$5,000.0

$6,000.0

$7,000.0

$8,000.0

$9,000.0

FY 17 Actual FY 18 Working FY 19 Baseline FY 19 Proposed base vs prop 18 vs 19

Governor Hogan’s Proposal? $29.5BState Funds (General Fund + Special Funds)

$ in millions

1 Department of Legislative Services, Spending Affordability Briefing, October 17, 2017. http://mgaleg.maryland.gov/Pubs/BudgetFiscal/2017-spending-affordability-briefing-october-17.pdf.

2 DLS, Fiscal Briefing, January 2018. http://mgaleg.maryland.gov/Pubs/BudgetFiscal/2018rs-operating-budget-fiscal-briefing.pdf

Up 2.3% (flat)

Up 2.7% (1.7% below

baseline)

Up 0.7% (1.5%

below baseline)

Up 2.5% (3% below

baseline)

Up 2.5% (1.2% above

baseline)

Up 2.7% (2.1%

below baseline)

Up 4.9% (1.3% above

baseline)

Up 3.9% (0.3% below

baseline)

$0.0

$1,000.0

$2,000.0

$3,000.0

$4,000.0

$5,000.0

$6,000.0

$7,000.0

$8,000.0

$9,000.0

FY 17 Actual FY 18 Working FY 19 Baseline

Governor Hogan’s Proposal? $29.5BState Funds (General Fund + Special Funds)

$ in millions

1 Department of Legislative Services, Spending Affordability Briefing, October 17, 2017. http://mgaleg.maryland.gov/Pubs/BudgetFiscal/2017-spending-affordability-briefing-october-17.pdf.

2 DLS, Fiscal Briefing, January 2018. http://mgaleg.maryland.gov/Pubs/BudgetFiscal/2018rs-operating-budget-fiscal-briefing.pdf

$44 Billion Operating BudgetProposed FY 2019

1 Footnote text can go here.

$ in billions

Health

$14.5

Pre-K-12

Education

$8.1

Higher Education

$6.6

Transportation

$5.3

Human Services

$2.8

Public Safety

$2.2

Natural

Resources

$1.1

Legislative,

Judicial, Legal

$0.8

Public Debt

$1.3Other

$1.8

$4 Billion Capital Budget

1 Footnote text can go here.

Proposed FY 2019$ in millions

Transportation

=

$2.9 billion

Pre-K-12

Education

374.8

Higher

Education

348.4

Housing and

Community

Development

126.4

Public Safety

25.3

Health

52.7

Economic

Development

18.9 Other

123.7

If current revenues

are not enough to

support status quo,

and status quo isn’t

sufficient to meet

needs, then what?

Maryland Needs More Revenue

▪ Still recovering from Great Recession, inequality continues to rise

▪ Lots of unmet needs across state

▪ “Blank check” for Amazon?

▪ Trying to support investments in 21st Century economy with a 20th Century tax system

▪ Expenses growing faster than revenues

▪ Unwillingness to ask everyone to pay their fair share

• Forces programs to compete for scarce $$$, some priority investments won’t be made

▪ Threats from Washington

Or we cut $$$ and let more people fall through the cracks

MD Has Room to Raise More Revenue

1 “State and Local Tax Revenue as a Share of Personal Income,” Tax Policy Center, 2016, http://www.taxpolicycenter.org/statistics/state-and-local-tax-revenue-percentage-personal-income.

U.S. Average

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Source: Tax Policy Center 2016. Note: Alaska is omitted because its tax system has limited comparability to other states. State and local taxes in Alaska are 36 percent of the state's personal income due to high severance tax revenues.

Potential Resources for Investment

▪ Eliminate corporate “nowhere income”, level the playing field for local business: $53 to $69 million

▪ Stop cutting the multi-millionaire estate tax, which only applies to the top one percent of estates: $82 million in fiscal year 2023

▪ Close the carried interest loophole benefiting hedge fund managers: $50 million

▪ Modernize the sales tax: $320 million

▪ Reinstate the millionaires tax: $170 million

▪ Tax marijuana like alcohol: $200 million

http://www.mdeconomy.org/wp-content/uploads/2014/12/Revenue-options-brief.pdf

Annual Revenue Estimates

Federal crisis is what

really trickles down to

the states

Massive tax cuts for the wealthy

(who are?)…

https://www.cbpp.org/research/federal-tax/jct-estimates-final-gop-tax-bill-skewed-to-top-hurts-many-low-and-middle-income

Individual

mandate repeal:

226,000 more

MDers uninsured

(who?), increased

premiums for

everyone

State response to federal tax bill

▪ Clarify the law to protect personal exemptions

▪ Expand the state EITC to include younger workers, workers without dependents

▪ Reinstate the millionaire’s tax ($50k federal tax break next year)

▪ Protect small businesses through corporate tax reform

▪ Tax larger pass-through entities as corporations

▪ Disconnect MD’s estate tax from federal

https://www.cbpp.org/research/federal-tax/jct-estimates-final-gop-tax-bill-skewed-to-top-hurts-many-low-and-middle-income

… even less

funding for

human

needsPresident Trump’s latest budget cuts $3

trillion from Medicare, Medicaid, food stamps and other social programs over

the next 10 years

=

Perhaps a $2 billion+ hole in MD’s budget

”Indeed, by 2028, total NDD spending, measured as a share of

gross domestic product, would be at its lowest level since

Herbert Hoover was President.”

It all comes down to non-defense

discretionary spending (NDD)

▪ NDD spending already at historically low levels

▪ Short-term stopgaps increase NDD uncertainty

▪ Republicans have talked about undoing the sequester for defense spending but leaving it – or even deepening it – for NDD spending

▪ Huge consequences for states (receive 25% of NDD) and communities suffering from underinvestment

▪ Maryland is particularly vulnerable

Threats from Washington: Solutions?

▪ Protect structure of the safety net (vital)

▪ Increase the NDD funding caps (unlikely in future years)

▪ MD must get creative to make up the difference

Bottom line:

Will Maryland and the

federal government continue

to invest in the pillars of our

modern economy, or will we

make drastic cuts to

education, healthcare, and

public safety?

www.mdeconomy.org

@mdeconomy