As the economy
lagged and revenues failed to meet expectations at the beginning of the 21st
century, attention throughout the country turned to state budgets. In Maryland,
concern has been expressed that certain entitlement program needs are chronically
underestimated in the budget. Increasingly, supplemental budgets (as many as
ten per session) are used as negotiating tools by the Governor with members
of the General Assembly. Bills introduced in the Senate in the 2001 and 2002
General Assembly proposed constitutional amendments to allow the legislature
to add to the budget and transfer funds between programs, powers they do not
have now. Both bills failed in the Senate, by two votes in 2002.
In response to
this increased interest in modifying the state budget process, the delegates
to the 2003 LWVMD Convention adopted “a study to determine the principles
that would promote fiscal responsibility and timeliness in Maryland's budget
process.”
The Operating Budget Process
Maryland's budget
process is unique. Maryland is the only state that operates on an executive-dominated
model of budgeting which allows the legislature only to reduce or restrict funding.
How did this
happen? In 1915 the legislature controlled the purse strings, and the state
faced a deficit of $1.3 million. The old methods of running the government were
inefficient and often corrupt. There was no oversight of the total budget; each
agency's appropriation bill was handled separately and without thought to the
amount of revenue available. As a result of the debt burden, a commission was
appointed and an accounting firm retained to examine the State's budget. The
executive-dominated budget, which had been recently approved by the City of
Baltimore, served as the model for the state and was adopted as a constitutional
amendment by the voters in 1916 and implemented in 1918.
Because of the
budget process, the Governor of Maryland is the most powerful state executive
in the United States. Maryland's governor is required to submit a balanced budget to the
General Assembly in January and the legislature is required to enact a balanced
budget. After submission, the governor may change proposed appropriations by
submitting one or more supplemental budgets, but they may only be attached to
the budget with the consent of the legislature. Under the constitution, the
budget bill is introduced in both houses. The governor is mandated to include
the following appropriations in the budget: judicial branch, legislative branch,
principal and interest on debt, public schools as provided by law, salaries
of public officers, and any appropriation the amount of which is provided by
law. All other appropriations are included in the budget at the discretion of
the governor.
The legislature
cannot increase the amounts allocated to executive branch departments or agencies
nor can it transfer funds from one department to another or from one program
to another within a department or agency. However, the legislature can increase
funding for the legislative and judicial branch agencies. The legislature may
reduce or delete some appropriations proposed in the budget bill. It may not
reduce appropriations for debt service, constitutional and statutorily mandated
support for public schools, and salaries of constitutional officers.
State agencies
and departments usually begin preparing their budgets in June, even though the
state's budget is not adopted until early April of the following year.Two phases
lead to the adoption of the budget: formulation and enactment. The implementation
phase of the budget lasts the full 12 months of each fiscal year.
Formulation
Development of
the executive budget is supervised by the Department of Budget and Management
(DBM). First the agencies and departments are provided with guidance with respect
to the amount of funds that may be included in the budget requests that are
due September 1st. Agencies and departments may include requests for additional
funds or new programs in separate documents. In the fall DBM reviews the budget
requests and recommends to the Governor enhancements, reductions, or no changes
to the requests.
There is no formal
process for citizen input in the formulation of the budget, but during the summer
and into the fall interested citizens, lobbyists and other advocates meet with
or write to agency secretaries or the Governor to urge additions to existing
programs and services or to suggest new budget initiatives.
The Board of
Revenue Estimates (BRE), established in 1945, is composed of the state Treasurer,
state Comptroller, and Secretary of DBM, and supported by the Bureau of Revenue
Estimates within the Office of the Comptroller. The Bureau is required to develop
an estimate of state revenues for the Board, and in mid-December the Board must
submit its report to the governor, who must share it with the legislature. An
updated estimate is prepared in early March before the budget is passed. The
BRE at times provides an informal estimate of revenues in September to assist
the governor in formulation of the budget.
The legislature's
statutory Spending Affordability Committee (SAC) meets each fall to consider
revenue projections and expenditures to ensure funds will be available to meet
the budget requests. The SAC is required to have an equal number of Senators
and Delegates and may include public members; by tradition the SAC has nine
Senators, nine Delegates and four public members. The goal of SAC has been to
keep the growth of spending for operating programs consistent with the rate
of growth in the personal income in the state. In December SAC submits its report
to the Governor, recommending the level of state spending growth. While the
Governor is not bound by law to this limit, if the proposed budget exceeds the
suggested limit, the Governor must provide an explanation in the budget message
why plans exceed the SAC recommendations.
After experiencing
the 1982 recession, Maryland established a “Rainy Day Fund” (officially,
the Revenue Stabilization Fund) in 1986 to increase the state's flexibility
in the budget process and for use in bad economic years. Initially the state
maintained the fund with two percent of the operating budget revenues until
the fund was depleted during the recession in the early 1990's. Since then,
the fund has contained at least five percent of the operating budget revenues.
The nonpartisan
Department of Legislative Services (DLS) is responsible to the legislature for
the oversight of the operating budget. From April to October, DLS analysts monitor
both the current year's appropriations and the budget formulation process for
the future year's budget. From November to early February their focus is on
budget analysis and development of recommended actions for the budget committees
to consider.
The governor's
final budget decisions are made in late December. The role of the governor in
the budget formulation process has varied by administrations. Some governors
have held extensive meetings with agencies and departments and have been involved
in details of formulating the budget. Other governors have focused on broad
budget goals and policies and DBM has implemented the goals and policies.
Enactment
During the session
the House Appropriations Committee and the Senate Budget and Taxation Committee
review the budget bill, hold public hearings and make decisions regarding all
budget items, including appropriations, supplemental budgets, budget reductions
and language. Programs and services are reviewed for their impact, efficiency
and sustainability, thus providing an opportunity for legislators to eliminate
inefficiency and waste and to improve or eliminate ineffective programs.
During and after
six weeks of hearings at which the public may testify, the committees receive
budget recommendations, including deficiency appropriation requests, from staff
of the DLS's Office of Policy Analysis (OPA) and the various agencies and departments.
Deficiency appropriations are required to correct current fiscal year budget
shortfalls created by an unexpected increase in enrollment to an entitlement
program, a miscalculation of federal funding reimbursement for program costs,
or a budget undercount of program participants. An example of the need for a
deficiency appropriation is the State's Foster Care Program. Budget estimates
of the number of children who will need this service are historically trend-based
and often are undercalculated at the time of budget adoption.
The governor
may submit supplemental budgets to amend or supplement the budget bill "to correct
an oversight, provide funds contingent on passage of pending legislation or,
in case of an emergency, by delivering such an amendment or supplement to the
presiding officers of both Houses . . . ." (Article III Section 52.5) In fact
the governor usually submits supplemental budgets to negotiate the interest
of the Governor and respond to the concerns of the legislators.
By prearranged
schedule the Senate passes the budget bill first in one year and the House passes
it first the next year. Once the budget committee in the first chamber has completed
deliberations, made decisions and prepared their report, the bill is brought
to the floor of that chamber for the second reading. This occurs around the
end of the ninth week of the session. Current practice stipulates that the budget
bill will be laid over for several days to allow members to review it in order
to be prepared to ask questions during floor discussion. Although many amendments
are proposed, only those coming from the respective budget committee are generally
adopted.
After the budget
bill passes the originating chamber, it goes to the second chamber, where it
is referred to the respective budget committee for review. The DLS explains
the amendments passed in the first house. The second chamber's budget committee,
which has also held hearings on the budget throughout the session, also amends
the bill and sends it to the floor sometime during the eleventh week of the
session. Once again the bill is laid over so the members can review the bill
and be prepared to ask questions during the floor discussion. After the bill
is passed as amended, it is returned to the first chamber for concurrence. If
the first chamber refuses to concur with the changes, a conference committee
is appointed to resolve the differences.
Because the two
chambers do not pass identical budget legislation, a conference committee must
be appointed. It is generally composed of five members from each house and is,
by House rule, restricted to dealing only with amendments in disagreement. The
conference committee usually meets in the twelfth week of the session. Sometimes
the Governor has submitted supplemental budgets while the conference committee
is meeting.
The Maryland
Constitution requires that the legislature complete action on the budget by
the 83rd day of the 90-day session. If this is not accomplished, the governor
must issue a proclamation extending the session if the budget is not passed
by the 90th day. The budget becomes law upon enactment without the governor's
signature. The budget is not subject to veto nor does the governor have the
right to a line-item veto.
After the operating
budget bill is passed by both Houses, passage of supplementary appropriation
bills may be considered. These are single purpose bills which must include a
designated revenue source to cover the appropriation. The supplementary appropriation
bill is a way for the General Assembly to add an appropriation to the state's
budget, but it is rarely done--only eight such bills have been passed since 1974.
The governor may veto supplementary appropriation bills.
The budget must
be balanced when it is passed.
Implementation
Once the budget
bill has passed both chambers in identical form, the budget bill becomes law.
Appropriations become available July 1 of the new fiscal year, with the exception
of any deficiency appropriations for the current fiscal year that are contained
in the bill. They become immediately available to the agencies. Funds to correct
budget deficiencies in the current fiscal year are requested by individual agencies.
During the formulation phase, DBM assumes that there will be some unknown level
of deficiency. The entitlement programs and programs with major federal reimbursement
or federal matching funds are the most likely to incur such deficiencies. Many
of the major health and social programs require deficiency appropriations to
avoid deficits. An agency's requests for deficiencies compete with other agencies.
DBM recommends to the governor the deficiency appropriations to be submitted
in the next budget.
The governor may change appropriations by the budget amendment process
during the budget year. By budget amendment the governor may reduce
executive branch appropriations up to 25 percent with the approval of
the Board of Public Works (BPW), composed of the governor, the state
Comptroller and state Treasurer. Funds may be reduced under this
provision only when the governor finds an appropriation is unnecessary
or when the reduction results from legislative action on the budget
bill. The governor may not reduce legislative or judicial branch
appropriations, appropriations for payment of the principal or interest
on state debt, or appropriations for public schools. There is no public
hearing, but the meeting notice and agenda are published, and the
decision meeting is open to the public. Citizens can submit their
concerns to the officials prior to the meeting.
Budget amendments
are also used in individual agencies to move appropriations from one program
to another so that underspending in one program will offset over-spending in
another. Generally, budget amendments cannot be used to move appropriations from
one department to another department. Budget amendments are also used to appropriate
additional special funds and federal funds that become available during the
fiscal year. Copies of budget amendments are provided by DBM to the budget committees
and to the DLS for review and comments. After 45 days DBM may submit the budget
amendment to the governor for approval.
The budget contains
a contingency fund for the operation of state government. In recent budgets
the contingency fund has been $750,000. The fund is appropriated to the BPW
and used for emergencies and to offset small shortfalls in agency budgets. After
approval by the BPW, transfers to the agency or department are made by the budget
amendment process.
The Capital Budget Process
Maryland does
not have a separate bill that contains all of the capital budget projects and
programs. Most state capital projects and capital programs are funded by debt
financing and they are included in the Capital Budget Bond Bill. However, in
Maryland appropriations for capital projects funded by the general fund, the
transportation trust fund, and agency special funds are included in the operating
budget.
The Capital Budget
Bond Bill is in fact a supplementary appropriation bill. That means that it
can only be passed after the operating budget is enacted and must include designated
revenue sources to cover the appropriations. The Capital Budget Bond Bill cycle
has the same phases as the operating budget: formulation, enactment and implementation.
However, the powers of the General Assembly are notably different in this case.
Formulation begins
with the departments and agencies preparing capital budget requests for the
DBM. During the summer the Capital Debt Affordability Committee prepares for
the Governor and General Assembly recommendations for the maximum amount of
new debt that should be authorized. The Committee, established in 1978, is chaired
by the state Treasurer; the other members are the state Comptroller, the Secretary
of DBM, the Secretary of Transportation and one public member appointed by the
Governor. In the fall the Governor prepares a preliminary recommendation, and
the DLS provides an analysis of debt affordability to the SAC, which recommends
the level of new debt in a report to the governor and General Assembly.
Enactment begins
when the Capital Budget Bond Bill is introduced in the General Assembly by the
20th day of the session and is assigned to the budget committees. The legislators
may modify the Capital Budget Bond Bill within broad parameters. Proposed capital
projects may be increased, decreased or deleted. Legislators may also add projects
with specific funding.
The powers of
the governor are somewhat different. The governor must sign the Capital Budget
Bond Bill for it to be enacted, or may veto the bill, or exercise a line-item
veto of the bill. It's noteworthy that the last time a line-item veto on the
Capital Budget Bond Bill was exercised was in 1991.
Other supplementary
appropriation bills can be individual bond bills submitted by legislators for
specific capital projects, usually in their district, but each bill requires
matching funds equal to available state funds.
The BPW is responsible
for implementation of the state's capital program except for state highway projects.
The Department of General Services administers the construction of state facilities
other than higher education. The Department of Transportation administers the
transportation capital programs. Other capital programs that provide construction
grants to local governments or to other entities are administered by various
state agencies.
Other States' Budget Processes
How does the
budget process in other states differ from Maryland's? Are the differences major
or merely technical and procedural? The answer is: both. The most important
difference between Maryland and virtually every other state is the way in which
the executive budget process dominates the legislative budgeting process in
Maryland. In all but three states the legislature has unlimited authority to
change the executive's budget; only in Maryland does the legislature have no
authority to increase or to reallocate funds among programs. Nebraska's limits
on increases can be overridden by a 3/5 majority, and West Virginia is restricted
only from reducing the judiciary budget or creating a deficit. At the other
extreme, Arizona, Texas and Colorado have strong legislative budget authority
and often ignore the executive budget.
In all but four
states the Fiscal Year begins on July 1, as it does in Maryland. Although the
majority of states budget annually, 20 states use some form of biennial budgeting.
Conclusions of the authors of the National Conference of State Legislatures'
(NCSL) document Legislative Budget Procedures match those of Maryland officials,
that neither system has any great advantage over the other. Budget calendars
are similar in all 50 states: budget guidelines are sent to agencies during
the summer with a due-back date and hearings are scheduled for the fall during
the formulation process. The governors submit their budgets to their legislatures
in December through February for legislative adoption, theoretically in the
spring. Ten states, including Maryland, use a combination of incremental, performance
and program-based budgeting, and 10 other states use program-based or performance-based
budgeting exclusively. Maryland has two budget bills--one for the operating budget
and one for the capital budget,--but this pattern is far from universal. Eighteen
states submit only one budget bill, and 12 others use up to 4 bills. Twenty
states submit numerous appropriation bills, topped by Arkansas with a 500 bill
limit.
In 32 states,
the legislature receives agency budget requests before the executive budget
is prepared. Eight states' legislatures, including Maryland's, never see agency
requests before the budget is prepared, and the other 10 submit their requests
after the budget is prepared but before, and even after, it is submitted to
the legislature. The length of time for the legislatures to consider the budget
varies, related somewhat to the length of their legislative session, and at
least 9 states have no provision for public input during these legislative budget
deliberations. Unlike Maryland, 25 states require a minimum time that their
legislators must have to review the proposed final legislative budget before
they vote, usually 24 to 72 hours, although the Rhode Island House requires
10 days. In 32 states a majority of those voting is required to pass the budget.
Three states mandate a super-majority, and the remainder require support from
a majority of elected legislators, as does Maryland.
Forty-three states
allow a gubernatorial line-item veto after the legislature passes the budget,
and 35 of those permit the governor to veto funding for an entire agency or
program. Only 12 states authorize the governor to cut an enacted budget without
restriction; the others impose conditions, such as a maximum percentage or required
consultation with the legislature, as does Maryland.
How the Maryland Legislature Influences the Budget
Process
Since the legislature
is prohibited from transferring funds from one program to another within the
proposed budget, Maryland's legislators have developed ways of influencing state
spending.
Budget Language:
During consideration of the budget, legislators may place conditions in the
budget on spending items, which have the force of law for that fiscal year.
Example: Legislators have described parameters in the budget for the textbook
funding program for private schools.
Budget Mandates:
Legislators often impose mandates for future funding in the budget. As a generic
example, legislation passed in the 2003 General Assembly that provided for spending
a specific amount or a spending formula on a certain program would require the
Governor to include the program's financing in the FY 2005 budgetÑtwo years
later. The Governor can veto a legislative bill.
Reports and Legislative
Hearings: The legislature can influence how an agency expends appropriations
or manages programs by requiring a report, usually through the Joint Chairmen's
Report (JCR), followed by a hearing on the issue during the legislative interim.
Although reports and hearings only result in comments and recommendations, agencies
are responsive to the concerns of the budget committees or subcommittees. Frequently
the concerns expressed by the committees are used by an agency when seeking
additional funding in a subsequent budget.
Special Funds:
The legislature may pass legislation (and the Governor may sign or veto) directing
new or existing revenues into special fund accounts; this is frequently done
and has resulted in over 1000 separate special accounts, with as many as 27
in the Department of Natural Resources. According to the DLS, over 30 percent
of the budget is drawn from dedicated sources. The shift to special funds by
many agencies actually gives the agencies greater budget independence from both
the Governor and the General Assembly because the funds are earmarked solely
for the agency or for a special program within the agency.
Spending Affordability
Exclusions: The legislature uses this process to set a limit on spending. However,
for FY 2003 a number of appropriations were excluded from the spending limit
total and in that way influenced the allocation of resources. They were homeland
defense costs, payment of fiscal 2001 Medicaid and mental health bills, and
enterprise activities at Baltimore-Washington International Airport, the Port
Administration, and the State Lottery Agency.
Supplemental
Budgets: Governors have used the Supplemental Budget process for many purposes,
often to promote their legislation. Supplemental Budgets give the legislature
the opportunity to negotiate with the Governor to direct those funds to programs
they favor. These deliberations are not open to the public, although advocates
can have input through legislators.
Bibliography
- Assessment
of the Maryland Budget Process. Office of Policy Analysis, Maryland Department
of Legislative Services, 2003.
- Fundamentals of Sound State Budgeting Practices. National Conference of State
Legislatures, 1995.
-
Legislative Budget Procedures: A Guide to Appropriations and Budget Processes
in the States, Commonwealths and Territories. National Conference of State Legislatures,
1998.
- Maryland's Budget Process. Legislative Handbook Series, Volume IV. Maryland
Department of Legislative Services, 2002.
The Budget Process
Study Committee: Barbara M. Coit, Chair (LWVMD & Talbot), Barbara Black (Talbot),
Mary Ann Draut (Talbot), Carol Filipczak (LWVMD & Howard), Betsy Grater (Howard),
Grace Kubofcik (Howard), Janet Peters (Allegany), Dorothy Ruyak (Baltimore County),
Barbara Steckel (LWVMD & Montgomery), Lois Stoner (Montgomery) Jule Sugarman
(Calvert).
© 2004 League of Women
Voters of Maryland, Inc.
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