Friday, November 21, 2008

Rich Madaleno on the Budget

Following is a statement from Senator Rich Madaleno (D-18), a member of the Senate's Budget and Taxation Committee, on the state's budget.

On Tuesday, the Department of Legislative Services (DLS) briefed the Joint Committee on Spending Affordability concerning the Transportation Trust Fund (TTF) and the state’s capital budget for FY10. Much like the last two Redskins’ games, there were few highlights and the news got worse as time went by. The briefing document is available here.

As you may have read in the Post and Sun, the main news from the briefing concerned the TTF. Even after the $1.1 billion in cuts, DLS estimates the trust fund projection for the next six years to be overstated by $2.3 billion. Put another way, the current six year Consolidated Transportation Program assumes a $5.8 billion capital program. The DLS revised projection would suggest the state can only afford a $3.3 billion capital program. This would limit the state to finishing currently under construction projects and then only proceeding with system preservation projects.

The briefing on the capital budget focused the Capital Debt Affordability Committee’s action to raise our debt limit from 3.2% to 4% of total statewide personal income. It is the first change in more than three decades. Because of the cuts to the transportation capital plan, we are no longer projected to exceed 3.2% over the next five years. This is good news since it will allow this new policy to be reviewed by the credit rating agencies in the abstract when we next go to the bond markets in February. If the rating agencies question the change, it can be reversed without having to constrain our capital program. This also leaves the state with additional debt capacity if we choose to use it for stimulus. Finally, DLS reported that a small property tax increase (one to two cents) will be necessary over the next two years to avoid having to subsidize debt service with general funds. Our current $0.112 property tax is dedicated to paying debt service.

The final piece of bad news concerns the general fund. All indicators suggest that our revenue picture will continue to worsen over the next few months. Data from September indicate that initial claims for unemployment insurance are up 62.6% over the same month last year. Sales tax revenues are down 7.8% for October over last year, and titling tax revenues are down 20%. The chart on page 34 shows that, while the cuts made by the Board of Public Works last month helped, we are still facing a $1.3 billion hole for FY10. Hopefully, Congress will act quickly over the next two months on a rescue plan for the states before Gov. O’Malley has to submit his next budget. It may also be time to seriously consider dipping into the Rainy Day Fund.

Please let me know if you have any questions. Have a nice weekend.