Governor Larry Hogan Announces Fiscal Year 2017 Budget

Governor Larry Hogan Announces Fiscal Year 2017 Budget
Provides Record Investment in Education and Positive Tax Relief, Holds Line on Spending

ANNAPOLIS, MD – Governor Larry Hogan today announced his Fiscal Year 2017 Budget, which is both fiscally responsible and balanced; it controls spending while fully funding all education formulas and all legislatively mandated spending.

The FY 2017 operating budget totals $17.1 billion, and includes a Rainy Day Fund balance of almost $1.1 billion and a cash balance of $449 million going into FY 2018. In 2015, the Hogan administration inherited $5.1 billion in accumulated structural deficits, including a $2.1 billion deficit in 2015 and 2016. Over the course of the last year, almost 90 percent of that inherited $5.1 billion deficit has been eliminated. The governor’s proposed budget continues to build on this progress and provides for sound fiscal management in future years.

"Our proposed FY 2017 budget brings fiscal restraint back to Annapolis and holds the line on spending, while increasing funding for top priorities like education and infrastructure," said Governor Hogan. "I am hopeful that this budget will set the stage for bipartisanship, while helping us clean up problems of the past, take care of our current issues, and make provisions for a better future."

For the second straight year, the governor’s budget provides a record-high level of funding going toward the education of Maryland’s children, including $6.3 billion for K-12 education, which is approximately $140 million more than last year. The budget also fully funds the Geographic Cost of Education Index (GCEI), making Governor Hogan the first governor in Maryland’s history to fully fund this program in a second budget.

Additionally, the FY 2017 budget provides for the tax and fee relief legislation recently announced by the governor that will save Maryland citizens and businesses approximately $480 million over the next five years. The Marylanders who will benefit the most under the governor’s proposals are the citizens who have been struggling the most: working families, retirees, and small businesses.

 

Due to the budgetary actions of the previous administration, general fund debt service payment obligations have grown rapidly, from zero in 2010 to $283 million this fiscal year. Debt service is the fastest-growing expenditure over the next five years at nearly 17 percent, and at the current pace, payments will skyrocket to $433 million in 2018.

To begin to address this very serious issue, the FY 2017 budget reins in how much the state borrows, setting the capital budget debt limit at $995 million – well below the level proposed by the legislature. By implementing responsible and limited borrowing today, the state would experience cumulative debt service savings of more than $200 million by FY 2025.

“Our state has consistently borrowed beyond our means over the last eight years,” said Governor Hogan. “Maryland’s debt obligations will soon outpace funding for new school construction and that is simply not acceptable – we must control our borrowing moving forward.”

Governor Hogan’s proposed budget puts Maryland on very strong financial footing in the short- and long-term, but the state still must address the fact that projected revenues are at times outpaced by legislatively mandated spending. As previously announced, the governor will continue to call for bipartisan, predictable, and common-sense budget reform. Currently, mandated spending accounts for 83 percent of the operating budget, and is a major driver of unsustainable spending and debt. By FY 2021, the state will be required to spend $3 billion more per year than it does today. To address this issue, the Hogan administration will introduce a bill that aims to control mandated spending increases in years when revenues are down and do not keep pace with the statutory increases.

The FY 2017 budget holds the line on spending while prioritizing prudent investments in areas such as education, public safety, the environment, and healthcare, including:

Fully Funding Education Priorities:

• Historic $6.3 billion investment in Maryland’s public schools, a $140.1 million increase over FY 2016, fully funding all state aid programs.
• Every single jurisdiction will experience an increase in the amount of per-pupil funding.
• $828 million in new K-12 funding over two years.
• $136.9 million to fully fund Geographic Cost of Education Index.
• $314 million for school construction projects, accounting for nearly one-third of FY 2017 capital spending.
• $704,000 to launch the development of four P-TECH 9-14 schools in Maryland.
• 6.1 percent growth in state aid for community colleges, raising total to nearly $314 million.
• $78 million in additional state support of public higher education, to limit tuition growth and support degree completion and student retention.
• $2 million in additional funding and 20 new positions to enhance services to vulnerable youth through the Juvenile Services Education Program.

Building for the Future – Transportation & Infrastructure:

• $3.1 billion in capital spending to improve transportation infrastructure and spur economic development.
• $231 million in Highway User Revenue (HUR) funds, including $54 million in additional capital grants to local jurisdictions to improve local roads and transportation facilities.

Over $480 Million in Tax Relief Measures:

• Seniors Tax Relief: Following last year’s passage of a retirement income exclusion for military veterans over the age of 65, the Hogan administration will introduce new legislation to extend the same tax relief to all retirees in Maryland. The administration’s proposed legislation would phase in an increase of the personal exemption for seniors to $5,000 over four years.
• Working Families – Refundable EITC Increase: The administration’s proposal will help 170,000 Maryland families across the state by accelerating the increase of the state refundable Earned Income Tax Credit.
• Statutory Fee Rollback: The Hogan administration will propose in an omnibus bill a range of fee reductions across state government, reducing or eliminating the cost associated with a variety of permits, applications, and services. These new fee reductions will result in nearly $100 million in tax reductions to taxpayers over the next five years.
• Business Filing Fee Reduction: The Hogan administration will propose a reduction in the current $300 business filing fee paid annually to the State Department of Assessments and Taxation, by $50 a year for four years.

Expanding Opportunities for Businesses:

• Additional $6.4 million in general funds for the Maryland Economic Development Assistance Authority and Fund.
• $20 million investment in the State’s Economic Development Opportunity Fund to invest in aerospace and defense research.
• $6.3 million for business assistance through the Maryland Small Business Development Financing Authority to facilitate the development of critical and promising small businesses.
• Record funding of $13.7 million to provide financing opportunities to small businesses through the Small, Minority, and Women-Owned Business Investment Account, an increase of $3.1 million, or nearly 30 percent over FY 2016.

Safety & Correctional Services:

• $73.7 million for police aid to local governments and municipalities, a 9.6 percent increase over FY 2016.
• Local law enforcement grants total $26.6 million in FY 2017.
• $4.8 million in new funding to implement recommendations put forward by Maryland's Heroin and Opioid Emergency Task Force, chaired by Lt. Governor Rutherford. Funds are above and beyond the $341.9 million dedicated in the FY 2017 budget to existing substance use disorder and addiction programs, and will be used to enhance quality of care and expand access to treatment and support services, boost overdose prevention efforts, and strengthen law enforcement options.
• $35 million to demolish existing structures and begin design of the new facility to replace the Baltimore City detention center under a Hogan administration plan that will save nearly $300 million.

Protecting the Environment:

• FY 2017 marks the first year in the history of the fund that no budget actions will divert funding away from bay restoration efforts to support the General Fund.
• $53 million to The Chesapeake and Atlantic Coastal Bays 2010 Trust Fund – highest level of funding since it was established, and $13.6 million more than in FY 2016.
• $60 million in new funding for Program Open Space and other land preservation programs over the next two years.
• First-time funding of $2 million for the Rural Maryland Prosperity Investment Fund.

Health Care and Public Safety Net:

• More than $10 billion for Maryland's Medicaid program, which currently provides basic health coverage for more than 1.2 million income-eligible Marylanders.
• $1.1 billion total budget for the Developmental Disabilities Administration, a $71 million or 6 percent increase over FY 2016.
• Includes $35.7 million to fully fund the minimum wage increase for providers of services to individuals with developmental disabilities. 

Full budget book can be accessed here.