1. 1 Annapolis Handbook Series Baltimore City’s Legislative Office Maryland’s Budget Process

2. 2 Budget Basics The State’s fiscal year runs from July 1 to June 30 The Governor is responsible for preparing the budget that is submitted to the MGA for approval. The Governor is assisted in preparing the budget by the Department of Budget and Management (DBM) The legislature can only reduce or restrict funding in Executive Branch agencies –The only exceptions: MGA can add to its own budget and that of the Judiciary Budget becomes law once the budget bill passes the MGA. –Governor does not sign and cannot veto the budget –Appropriations become effective July 1 (except for deficiency appropriations for the current year that take place immediately)

3. 3 Budget Schedule Budget instructions given to executive agencies by DBM in June of the second prior fiscal year –Based on estimated revenues and forecasts of spending to maintain current levels of service In order to have the best chance to be effective, Baltimore City should alert the State to its budget priorities in August or early September Budget requests prepared by agencies –Agencies submit requests to DBM in September –Requests may include additional funds for the current year to address deficiencies –Reviewed by the Governor in the fall The Governor submits the budget on the third Wednesday in January The Governor may submit supplements to the budget prior to final passage The MGA reviews the budget and must pass the budget by the end of the 90 day session (or else the session may be extended). The budget becomes effective upon passage and is effective on July 1

4. 4 State Revenue Estimates Maryland uses a “consensus” method for estimating revenues called the Board of Revenue Estimates (BRE). The three members of the BRE include the Treasurer (appointed by the legislature); the Comptroller (elected, not appointed by the Governor); and the Secretary of the Department of Budget and Management (Governor’s representative) The BRE provides a forecast of revenues to the Governor in September (for next fiscal year), again in December, and are updated in March. Independent body ensures objective, non-political estimate of revenue and draws from expertise of state executive agencies, DLS and the private sector.

5. 5 Maryland State Budget Sources of Revenue General Funds – Primarily revenues from broad based taxes not dedicated to a specific purpose Special Funds – Other State revenues, primarily from taxes and fees, dedicated to specific purposes; higher education and transportation revenues account for over two-thirds of these funds Federal Funds – Revenues from the federal government for specific purposes

6. 6 MGA role in budget MGA’s Spending Affordability Committee (SAC) makes recommendations each December with respect to the amount of the budget for the next fiscal year, although this is not binding, the budgets adopted have typically been within the limits set by SAC. The General Assembly reviews the Governor’s budget proposal during its 90 day session with the help of analysis by staff of the Department of Legislative Services (DLS). DLS submits analyses of agency budgets that are the basis of action by the MGA and the budget. By law, the General Assembly may reduce or restrict spending. The General Assembly may not increase spending or transfer funds from one purpose to another

7. 7 MGA role in budget (continued) May adopt legislation requiring spending in future years that the Governor must include in the budget (mandates), or by specifying formulas Each chamber passes its own version of the budget Conference committee makes final decisions –Made up of five House and five Senate budget committee members –Meets to resolve all differences between the House and the Senate versions of the budget The budget is enacted upon final approval of the conference committee report by the legislature

8. 8 What is a Balanced Budget? While the whole budget must be balanced, for practical purposes the focus is on the general fund. The budget must be balanced on a cash basis. –When submitted by the Governor –When enacted by the Legislature One-time measures can be used to balance the budget without addressing the structural budget gap.

9. 9 Balancing the Budget Statute drives a number of elements of the budget. –Mandates and entitlements –Dedicated special fund revenues Discretionary spending can be provided in the amount of the Governor’s choosing. Mandates must be funded by the Governor as directed by statute. To modify mandates, entitlements, and most revenues, separate legislation must be enacted in concert with the budget –Recent practice has been to use a Budget Reconciliation and Financing Act (BRFA) BRFAs have been used to adjust mandated formulas or statutory funding levels, to redirect dedicated revenues to other uses (or to the general fund), and to establish or modify fees.

10. 10 Role of DLS in budget process DLS submits analyses of agency budgets that are the basis of action by the MGA and the budget. –Budget analyses are presented and agencies are given the opportunity to respond to issues and recommendations made during public hearings (late January – early March) –Budget and Taxation (B&T) and Appropriations committees hold separate, but concurrent public budget hearings –Analyses are not made public until the day of agency hearing –DLS recommendations are not always taken, but should be taken seriously (decisions are not made at the time of hearing)

11. 11 Role of DLS in budget process (continued) –Budget committees will meet with DLS staff to discuss recommendations throughout process (decisions often made a week before public decision meetings) –Public Decisions on recommendations are typically in mid to late March –Senate moves the budget first in even years and the House moves the budget first in odd years (B&T and Appropriations make separate budget decisions) –DLS Staff participate in drafting of budget amendments and provide support during the floor debate and conference committee. Budget reductions are reflected as amendments. –Produces Joint Chairmen’s Report in order to express legislative intent within budget or request studies or reports of agencies during the interim.

12. 12 Budget Reconciliation and Financing Acts (BRFA) The BRFA is a separate piece of legislation passed by the MGA in addition to the budget bill. Modifies the underlying statute that has a budgetary effect Acts like any other piece of legislation May provide for short or long-term changes (Does not expire at the end of the fiscal year like the budget bill does) It can be used to implement a variety of actions such as raising revenues, altering statutory formulas and mandates, and transferring varies monies in special funds to the general fund to allow for their use for other purposes such as balancing the budget. Often appropriations in the budget will be contingent on the enactment of the BRFA Must be enacted with the budget so that the actions can be counted as balancing the budget. If a BRFA is necessary to help balance the budget, the Governor typically introduces the BRFA at the same time as the budget.

13. 13 Budget Reconciliation and Financing Acts (BRFA) continued… The BRFA is assigned to B&T and Appropriations Committees and each hold a separate hearing on the bill. Typically the hearings consist of testimony from the administration and overview and summary by DLS, as well as alternative and additional recommendations. Testimony is also received from agencies, interest groups and the public. Members of affect policy committees are often invited to participate Decisions on the BRFA recommendations are made at the same time as the budget decisions. Budget committees affirmatively concur, reject or modify the provisions in the BRFA and therefore the associated appropriation or revenue.

14. 14 Capital Budget The Capital budget bill is typically introduced by the presiding officer of each house as an administration bill by the 20 th day of each session. Similarly to the operating budget it is customary for the House and Senate to move the bill in alternate years. (odd-House, even- Senate). The MGA can add and delete projects from the capital bond program. MGA may also increase project funding and add contingent, conditional or restrictive language to the bill regarding how the funds may be applied. The Capital budget bill must be signed by the Governor and is subject to the Governor’s line-item veto. The bill must include tax revenue by which the appropriations contained in the bill are to be paid. The capital budget may not be finally acted on until after the operating budget has passed.

15. 15 Capital Budget The capital budget is used to provide funds for long-term assets, such as buildings and roads The Capital Improvement Program is the State’s five-year facility plan; transportation investments are contained in the six-year Consolidated Transportation Plan Funded by debt (general obligation and revenue bonds) and cash –15-year general obligation debt authorization is backed by the full faith and credit of the State (guarantees repayment) –Revenue bonds are backed solely by one or more revenue sources dedicated to repayment (e.g., parking garage revenue used to repay bonds sold to build the garage) but it is not guaranteed to be repaid –When cash is used, it is referred to as pay-as-you-go (PAYGO) and appears in the operating budget bill –For more specific background on the types of bonds and debt please see the Maryland Legislative Handbook Series on Maryland’s Budget Process

16. 16 Capital Budget Schedule DBM provides capital budget submission instructions to agencies and other parties in early May. State agencies must submit their capital requests by June 30 Other funding requests are due in early August (including Baltimore City) Throughout summer/fall DBM, DLS conduct site visits of various projects DBM holds meetings/hearings on each project submitted in September and DLS staff also attend Capital Debt Affordability Committee releases its report in early September Throughout the fall DBM reviews projects and prepares the five-year CIP with the assistance of DGS DBM submits its recommendations to the Governor in December Governor submits capital budget to MGA DLS reviews and presents analyses of proposed projects to budget committees in a similar fashion as the operating budget presentations Budget committees hold public decision meetings Each chamber passes its own version of the capital budget and bill goes to conference committee Cannot be finalized until after the operating budget is complete. The Capital budget bill must be signed by the Governor and is subject to the Governor’s line-item veto

17. 17 Bond Bills Individual bond bills are used for primarily local projects and are sponsored by members of the General Assembly and are, for the most part, processed and reviewed in the same manner as other bills. However, budget committees typically select one day in mid-march to exclusively hold hearings on bond bills – called “bond bill Saturday”, which often overflows into the following Monday. On bond bill Saturday, public testimony is often limited to 3 minutes per project While requests for bond bills often total over $30 million, the legislature typically limits itself to around $15 million split between the House and Senate for all legislative initiatives. These are often awarded as more of a political award to legislators who have been cooperative in passing the budget. Recently, individual bond bills have not been acted upon by the legislature. Instead, the General Assembly has amended the State Capital Budget Bill to specifically list the projects selected for funding. However, this action is done by the discretion of the leadership on a year by year basis. Project recipients will receive a package from the State Department of General Services for instructions on how to manage their grant funds typically sometime in July.