Monday, January 26, 2009

Counties Escape the Worst in O’Malley’s Budget

Governor Martin O’Malley, a former mayor of Baltimore, has expressed sympathy for the financial circumstances of local governments ever since taking the reins of the Free State. During the 2007 Special Session, his budget proposal largely protected county aid. His new budget does the same. The counties should be breathing a sigh of relief.

The Governor proposes appropriating $14.44 billion for the general fund in FY 2010, down 1.3% from FY 2009 ($15.011 billion). His budget assumes that the federal government will provide the state $350 million to support Medicaid spending. He also transfers $619 million from reserve funds to cover deficits in FY 2009 and FY 2010, including $366 million from the local income tax refund reserve.

The nearly one-billion-dollar total of increased federal aid and transfers has enabled the Governor to stave off the worst in terms of spending cuts. Here’s a comparison of FY 2009 and his proposed FY 2010 budget from the Department of Legislative Services:

The only area taking a double-digit cut is medical assistance, which reflects a partial rollback of a health care expansion passed in 2007. Higher education receives a 7.7% increase, buttressed by the Governor’s determination to hold the line against tuition hikes.

Here is further detail on the Governor’s planned state aid by category:

None of the aid categories are changing significantly. A $71 million cut to local schools’ operating budgets is compensated for by a $137 million increase in retirement funding, yielding a total school aid increase of 1.2%. Libraries are down 0.5%, community college aid is up 2.0% and county/municipal aid falls by 1.0%.

How did each of the counties fare? We illustrate their relative fates below.

Overall, aid is up by 1.0% (including increased retirement contributions). Montgomery County’s aid rises from $663 million to $715 million, an increase of 7.7%. But that is misleading since it includes extra money to make up for the state’s underpayment to the county’s schools last year. Accounting for that money likely brings Montgomery’s increase down to the low single digits. Three Eastern Shore counties – Wicomico (6.7%), Worcester (4.5%) and Talbot (3.6%) are among the biggest winners on aid. Prince George’s County (down 1.2%) is the biggest loser. But these shifts do not change the rankings of per capita aid. Baltimore City still leads the pack and Montgomery is still third from the bottom, just like last year.

Public school superintendents are already beginning to protest their operating budget reductions. It’s true that the Governor is proposing to cut their operating aid by $71 million. It’s also true that the Governor is proposing to reduce by half the Geographic Cost of Education Index (GCEI), which steers extra money to Prince George’s County, Montgomery County and Baltimore City. But in return, the Governor has protected local governments from the burden of financing teacher pensions.

That’s a deal the counties can live with.