January 20, 2012

Up the Street

Issues of the Week: Budget, Pension Shift, and Taxes

Governor O’Malley unveiled his $38.9 billion state operating budget for fiscal year 2013 on Wednesday.  The budget is balanced through a series of revenue enhancements, budget cuts, one-time transfers, and a controversial proposal to shift a portion of teacher pension costs to county governments.  The governor’s webpage includes an overview of the governor’s budget actions.

Thornton Funding and State Aid for Education:

The O’Malley budget fully funds Thornton and the Geographic Cost of Education Index for FY13, which includes $108.5 million more in direct state aid for education than in the FY12 budget.  Here is the county-by-county accounting of the proposed education aid

Revenue Proposals:

The O’Malley budget generates $311 million in new revenue for the state as follows:

• $182m through income tax adjustments: cap deduction and phase out exemptions for the 20 percent of Marylanders who earn more than $100,000 annually.  The Gazette provides additional details on the income tax changes.
•  $21m through the application of the sales tax on internet purchases.
•  Additional revenue through closing some tax loopholes and $59m through court settlements with pharmaceutical and insurance companies.
  

Pension Shift:

• $239m shifted from the state to county governments to cover a 50/50 split of total retirement costs (pension + Social Security) in FY13.

 Counties receive new revenue (without requiring any local action) to mostly offset the full cost of the FY13 shift.  There is limited exposure in some counties, but on the whole, all 24 jurisdictions receive $244.5m through five funding streams.

1. Applying the same income tax adjustments to local rates =  $111m
2.  Counties receive financial benefit of recordation tax collection = $40m
3.  Repealing a requirement for counties to repay their income tax reserve = $37m
4.  Sunsetting a requirement for locals to reimburse for federally funded positions = $37m
5.  Adjusting disparity grant aid = $19.5m
   •  All revenue offsets are included in the BRFA and would continue in years moving forward except for the funding realized in the disparity grants.  Additionally, while pension costs are expected to increase in FY14 and over the next several years, the revenue offsets will decrease in the following year and remain insufficient to completely cover the pension bill.
   •  The shift is a change in who pays the pension bill.  It does not further reduce benefit levels.
     
   •  Check here for the county-by-county allocation of shifted costs and revenue offsets

Proposed General Fund Spending Cuts:

• Nearly 55 percent of the budget deficit is closed by making general fund spending cuts totaling $371 million.  Those cuts are added to the general fund savings realized in shifting $239 million in teacher pensions for a total reduction of state spending in FY13 of $610 million.
• In response to the governor’s budget and pension shift proposal, MSEA President Clara Floyd issued our statement of concern and opposition to the shift, and called on the General Assembly to focus on protecting school funding by fixing the broken maintenance of effort law.

News and Notes

• Capital Budget of $3.6 billion
  Governor O’Malley also introduced a $3.6 billion capital budget that focuses on new infrastructure projects, including a proposed $373 million for school construction.  The governor’s office estimates the capital budget will help to create 52,000 jobs.

Transportation Package Expected Soon

• The O’Malley budget did not include any elements of a transportation package or gasoline tax increase.  The governor suggested to reporters that such a package would be announced in the next two weeks.  It is widely believed that his plan will include an increase in the gas tax to support new road and transit infrastructure projects, and perhaps enough money to reimburse highway user fees that will benefit local governments.

The week ahead

Next week promises to be a busy one with likely highlights including:

• Detailed budget briefings from the Department of Legislative Services to a joint committee of Delegates and Senators from House Appropriations and Senate Budget and Tax will be at 3pm on Monday, January 23.
• Last day to guarantee a bill is drafted and can be dropped on time is Tuesday, January 24. 
• All week: issue briefings, bill hearings, and ongoing committee meetings.

What can you do?

This session, we are asking MSEA members, Maryland Legislators, and all supporters of public education to do your part for great public schools!  We have a lot at stake this year and will rely on your continuous support and activism to encourage our elected leaders to fix maintenance of effort and protect the critical investments in our schools and our children’s futures.

Do your part as an education advocate today by making sure Governor O’Malley and your delegates and senators hear from you and your colleagues and friends.  The Frontline link this week provides a way to send an email to your elected officials about the budget, our concerns about the shift and the need to adopt a comprehensive fix to the broken maintenance of effort law.  Click here to review a sample message, customize it to help communicate your story, and make sure they hear from you. After you have done that, share the link with your members.