PART A
BUDGET AND STATE AID

OPERATING BUDGET

BUDGET IN BRIEF

The budget adopted at the 1999 session provides $17.6 billion in appropriations for fiscal year 2000, an increase of $708.0 million over fiscal year 1999. General fund appropriations for fiscal year 2000 are $404.2 million greater than current spending authority.

State agency spending accounts for the largest growth in the general fund portion of the budget. Funding for enhancements and initiatives established or expanded programs to improve higher education, expand funding for HotSpot and Break the Cycle public safety programs, address substance abuse treatment needs, and implement fundamental changes in employee compensation. Compensation enhancements include a flat $1,275 phased cost-of-living adjustment, moneys to establish and convert employees to a new pay plan, a State match of up to $600 of employee contributions to deferred compensation plans, and performance based bonuses. Legislation also passed Senate Bill 141/House Bill 191 (both passed) enhancing State Police retirement benefits.

Education programs continue to fare well in the fiscal year 2000 budget. State college and university funding was increased $74.9 million (10.4%) to further enhance post-secondary programs. Pass-through education aid to local jurisdictions increased $66.9 million. The operating budget includes $165.0 million for public school construction. In combination with funding in the capital budget, $255.0 million will be available for school construction in fiscal year 2000. Other education aid increases were provided to community colleges, scholarship programs (including a new HOPE scholarship program for prospective teachers), and aid to private colleges and universities.

GOVERNOR'S BUDGET PROPOSAL

The Governor submitted the original budget and three supplemental budgets totaling $17.9 billion, which was 5.7% higher than the fiscal year 1999 working appropriation (including deficiency appropriations applied to the base). The Administration's fiscal program benefitted from higher than anticipated revenue growth in fiscal year 1999 which was incorporated into the fiscal year 2000 proposal. In addition to higher estimated revenues, the proposed spending program was also predicated on the enactment of a $1.00 increase in the tax on tobacco products (50 cents in fiscal 2000). Of the $154.8 million estimated by the Governor, $146.8 supported State spending, and $8.0 million was linked to the design of four higher education capital projects. In effect, this meant that failure to pass the tobacco tax would leave the budget out of balance by nearly $150 million. On the 83rd day of session Supplemental Budget No. 3 was submitted which included $156.2 million in general fund spending that was linked to passage of a tobacco tax increase. House Bill 190 (passed) increased the tax on tobacco products by 30 cents, (which raised $91.7 million for fiscal 2000).

On a spending affordability basis, the proposed budget (including all deficiency and supplemental spending) provided for an increase of 7.24%, or $147.8 million over the 5.9% spending limit recommended by the Spending Affordability Committee. The challenge facing the legislature entailed the identification of reductions sufficient to balance the budget and meet the spending affordability limitation.

Specifically, the allowance provided increases for local aid, State agency operations, entitlement programs, debt service, and pay-as-you-go (paygo) capital projects. Appropriations totaling $169.3 were made to the State Reserve Fund, which included the initial $54.3 million tobacco settlement of the State of Maryland v. Philip Morris et al, and a contingent expenditure of a portion of tobacco tax monies.

LEGISLATIVE CONSIDERATION OF THE BUDGET

In sum, the legislature reduced the Governor's fiscal year 1999 deficiency items by $14.2 million and pared the fiscal year 2000 allowance by $328.3 million. Of these amounts, approximately $259.4 were general fund reductions. Cutbacks occurred largely in appropriations to the State Reserve Fund ($114.2 million - See Reserve Fund subheading), employee compensation items ($41.3 million - See Personnel subheading), paygo capital ($29.1 million), and Medicaid and Temporary Cash Assistance programs based on caseload trends ($30.0 million). Funds for several initiatives such as the HOPE scholarship, Break the Cycle, Head Start, DBM automation enhancements, and the after-school program were delayed or scaled back. Deficiency reductions were largely made in Maryland Department of Transportation (MDOT) special funds based on lower debt service requirements and bus maintenance costs which are now eligible for federal capital dollars. Supplemental budgets submitted by the Governor also withdrew appropriations totaling $7.2 million based on tax credit program trends and MDOT diesel and bus maintenance funding needs.

The Governor's budget included many items which were contingent on legislation, most of which related to the receipt of the initial tobacco settlement payment ($54.3 million to the State Reserve Fund and $800,000 for Attorney General expenses), new economic development programs, and funds for the new HOPE scholarship program for teaching students. A portion of the budget, while not directly contingent on the enactment of an increase in the tobacco tax, was supported by the proposed increase.

This budget was unique in that abundant revenues were available, yet significant reductions were necessary to meet spending affordability guidelines and provide the legislature with the flexibility to pass a budget that did not require a tobacco tax increase. Ultimately, legislation was passed to implement a 30 cent increase in the tobacco tax. Much of this funding supported the one-time paygo capital projects in Supplemental Budget No. 3. Additional revenues became available in March 1999, when the Board of Revenue Estimates advised that the general fund revenue collections for fiscal year 1999 were anticipated to increase by $22.6 million. This was due largely to higher than anticipated income tax attainments and interest income, offset by lagging lottery sales. The board conservatively estimated that fiscal year 2000 revenue estimates should only be increased by $5.0 million.

FINAL BUDGET

The final budget for fiscal year 2000 appropriated $17.6 billion. Exhibit A.1 illustrates funding by type of revenue. Just over one-half is supported by general funds with lesser proportions supported by dedicated special funds, federal aid, and higher education dollars. Less than one-half of the budget supports agency operations. Aid to local jurisdictions constitutes about 22% of the budget, followed by approximately 17% for entitlements. Remaining appropriations pay debt service on general obligation bonds, fund portions of the capital program, and increase the balance in the State Reserve Fund.

EXHIBIT A.1
Maryland's $17.6 Billion Budget

SELECTED BUDGETARY INITIATIVES

The following summarizes some of the major operating budget initiatives which were not contingent on the enactment of legislation.

Eighth Circuit Court

In response to a crisis in the adjudication of criminal cases in the Baltimore City Eighth Circuit Court which resulted in the dismissal of cases against murder and armed robbery suspects, the General Assembly appropriated $4.0 million and authorized 51 new permanent positions to assist State agency operations in the Baltimore City criminal justice system. The appropriations and personnel will be used to: (1) expand utilization of the courtroom at the Central Booking and Intake Facility; (2) construct, operate, and staff three additional Eighth Circuit Court trial courtrooms to address the backlog of criminal cases; (3) implement a Baltimore City pilot project that will provide representation to indigent clients during bail review hearings; and (4) support the activities of the newly reconstituted Baltimore City Criminal Justice Coordinating Council.

The General Assembly adopted budget language that withholds $17.8 million in State appropriations for the Judiciary, Office of the Public Defender, Department of Public Safety and Correctional Services, and Local Aid Law Enforcement Grants. The appropriations will be released when the Baltimore City criminal justice system stakeholders, including State and local government agencies, submit a plan to the General Assembly that addresses the substantive policy and management reforms to be implemented to resolve the criminal case processing crises in the Eighth Circuit Court. The language further provides that the newly reconstituted Baltimore City Criminal Justice Coordinating Council, composed of various partners in the criminal justice system, assist in the development of strategic plans and recommendations to improve the system.

State Expenditures on Year 2000 Readiness

Estimates by the Gartner Group and Andersen Consulting predicted Maryland would need to spend between $55 and $120 million to achieve Year 2000 (Y2K) readiness of its entire information infrastructure. This estimate included both out-of-pocket costs and in-house resource utilization. In the fiscal 1998 through fiscal 2000 budgets the State has allocated over $125 million to support the management and correction of its Y2K program. The fiscal 2000 budget stipulates that up to $300,000 of State general funds may be distributed to municipalities to assist in Y2K remediation and replacement efforts.

HotSpot Expansion

The HotSpot Communities Initiative was launched in 1997 to target 36 high-crime, at-risk neighborhoods. The program concentrates crime prevention resources in areas disproportionally affected by crime and allows residents to develop and implement strategies to combat crime. The initiative includes elements such as community policing, community probation, community mobilization, crime prevention through environmental design and after-school activities. The goal is to reduce crime by 25 - 35 percent over three years.

Under the initial implementation of the program each county nominated one HotSpot community. An additional twelve HotSpot communities were selected based on each county's share of serious crimes. This second allocation resulted in an additional five HotSpots in Baltimore City, three in Prince George's County, two in Baltimore County and one each in Montgomery and Anne Arundel counties. The fiscal 2000 budget includes $6.1 million in State funds to expand the HotSpot initiative to an additional 36 sites. The sites will be selected by a process similar to that used to select the original 36 sites.

The fiscal 2000 expansion of the program includes new funding in three agencies: the Governor's Office of Crime Control and Prevention, the Department of Juvenile Justice, and the Division of Parole and Probation. Grants will increase $3.5 million. The remaining funds ($2.6 million) will be used to place additional probation agents in the communities. These probation agents place offenders under intensive supervision and work as part of a team including community police officers to supervise high-risk offenders in the identified neighborhood. These teams share information, perform joint home visits and nighttime curfew checks, and are based in community substations.

Expansion of Outpatient Drug Treatment Options for Juvenile Offenders (Break The Cycle)

The fiscal year 2000 budget contains $991,000 in the Department of Juvenile Justice (DJJ) to expand outpatient drug treatment options for juvenile offenders. Specifically, DJJ intends to pilot an integrated public safety and health approach to deter drug abuse in three jurisdictions: Baltimore, Montgomery, and Anne Arundel Counties, serving approximately 550 youths.

Treatment will be founded upon three principles: lengthy substance abuse treatment; mandating that treatment through a court order; and monitoring progress through twice-weekly urinalysis which is backed up by the possibility of further sanctions. The intent of this program expansion in an outpatient setting is to prevent offenders from moving further into more intensive, restrictive, and expensive treatment options within the juvenile justice system.

ADAA Substance Abuse Programs

The Alcohol and Drug Abuse Administration (ADAA) received almost $8.5 million in additional funding for expansion of local programs in fiscal year 2000. The most significant funding increase of $3 million will cover the expansion of treatment programs in the areas with the greatest need. In addition, ADAA will support a new facility that provides inpatient and outpatient services for pregnant and post-partum women with $1.6 million. Another $1.2 million will cover detoxification units in intermediate care facilities as well as 40-beds in intermediate care facilities in Southern Maryland. A facility, operated jointly with the Mental Hygiene Administration (MHA), will use $488,000 for treatment of court committed offenders with substance abuse and mental health problems. In a related program for offenders, the ADAA will expand treatment services in local detention centers with $480,000. Almost $1.7 million in federal funds will support the expansion of halfway houses, medication assisted therapy, and prevention programs for high-risk youth and college students.

Mental Hygiene Administration Initiatives

The MHA both administers State programs and operates inpatient facilities for persons with mental illness. The fiscal year 2000 budget contained four major programmatic changes:

1. The downsizing initiative, funded at $5.904 million, is intended to allow community based placements for 123 individuals who are currently served in MHA-operated residential facilities. The program is intended to grow to serving 164 individuals in fiscal year 2001;
2. The Targeted Case Management Services Program provides aggressive case management services for individuals identified as most likely to require hospitalization or those who have been hospitalized and are considered most likely to require rehospitalization. This year's expansion will increase service provision from an estimated 722 persons in fiscal year 1998 to over 1,500 persons in fiscal year 2000 and cost an additional $2.242 million in fiscal year 2000;
3. The transitioning youth initiative is intended to serve youths with mental illness by providing a bridge from adolescence to adulthood through case management for planning, linkage, support, advocacy and education facilitating transition to the community, supported employment, residential services, and mental health treatment. The fiscal year 2000 budget includes $1.6 million to serve 80 people for six months. When fully phased-in, the initiative will serve 579 individuals; and
4. The respite care initiative is designed to make respite care services more readily available within Maryland. Through the initiative it is hoped that out-of-home placements, hospitalization, and out-of-State placements can be reduced by offering respite from the stresses and demands which can overwhelm caregivers of children with serious emotional disturbance. The fiscal year 2000 budget includes $588,000 to serve 350 children in seven different programs. When fully implemented, the initiative is expected to serve 1,050 children in 21 programs. The $10.3 million fiscal year 2000 cost is expected to grow to $35.5 million by fiscal year 2004.

After School Initiative

The Maryland After School Initiative targets latchkey children and others who spend ten or more hours per week unsupervised after school. This is the time when most juvenile arrests occur. Programs are operated by schools, churches, police athletic leagues, and non-profit organizations. Eighteen after school programs targeting 4th through 8th grade latchkey children are currently participating in a statewide evaluation of processes and outcomes. These programs, funded through a federal grant, are required to implement research-based activities and to use "best practices" in running their programs. In addition over 30 additional after school programs are supported as part of the HotSpot communities initiative (see Part E Sub-part Public Safety, HotSpot expansion)

The Maryland After School Program Initiative seeks to have a measurable impact on key behavior indicators such as school attendance, academic performance, disciplinary referrals, social skills, association with positive peers, and delinquency. Currently approximately 1,200 children are participating in these after school programs in every county. An additional $1,150,000 in State funds is provided in the fiscal year 2000 budget to expand the initiative. It is anticipated that this funding will support approximately 38 additional programs statewide, serving an additional 1,000 children.

Head Start Enhancement

Head Start is an early childhood development program primarily for disadvantaged children aged three to five. Children eligible for Head Start are from families with income below the federal poverty line and families who are otherwise eligible for public assistance. The fiscal year 2000 budget includes $2.5 million in State funds to supplement the $50.6 million in federal funding. The federal funds are granted directly to a local Head Start grantee in each jurisdiction, for example, in Baltimore County the YMCA, in Montgomery County the public school system. Maryland is one of only a handful of states not to offer State support for Head Start, although the State has other early childhood development programs which complement Head Start.

The proposed supplementary State dollars will only be made available to existing Head Start grantees. Each jurisdiction will receive a portion of the available appropriation using a formula similar to the federal allocation formula and on a per-child basis.

Child Welfare Workforce Initiative

The fiscal year 2000 appropriation for the Department of Human Resources (DHR) contains $14.1 million to implement provisions of Chapter 544, Acts of 1998 (HB 1133). Chapter 544 seeks to improve the quality of child welfare services through recruiting and retaining competent staff and reducing caseload to staff ratios for foster care, family preservation, and protective service workers. Specific provisions:

• bar DHR from hiring contractual child welfare workers or supervisors after June 30, 1999;
• direct DHR to develop appropriate child welfare caseload to staff ratios for each jurisdiction; and
• require DHR and the Department of Budget and Management (DBM) to review child welfare caseworker and supervisor salaries and recommend salary adjustments that will be adequate to recruit and retain caseworkers and supervisors.

The budget includes funding to provide salary enhancements of two to three grades, or $5,000 to $6,000, to caseworkers and supervisors who pass competency tests, and to convert all contractual casework positions to permanent status. Additional funding is also provided to establish a pilot program which will reduce the caseload to staff ratios in Allegany and Caroline Counties and the northwest part of Baltimore City to 8 families to every 1.5 staff. Under the pilot, a worker will stay with the same case as it progresses through the child welfare system rather than being assigned to a specific function such as protective services or foster care.

Waiting List Initiative

The Developmental Disabilities Waiting List Initiative is the result of the commitment by the Governor and the General Assembly to reduce the backlog of 5,000 developmentally disabled individuals waiting for community-based services. Over a five-year period that began in fiscal year 1999, the Developmental Disabilities Administration (DDA) is slated to receive $118 million in additional funds for the initiative. In fiscal year 2000, DDA's appropriation increases by $23.5 million for services for 980 waiting list clients and $8.2 million for provider rate enhancements. These increases are in addition to the $34 million added to the base budget in fiscal year 1999 for 2,177 waiting list clients.

As part of the initiative, DDA has broadened the range of services for waiting list clients. Under the principle of self-determination, clients and their families are encouraged to select services that maximize a client's independence and integration into the community. These services include residential programs, in-home support, and day programs. DDA reports that the initiative has received national attention and recognition. Other states are watching Maryland's progress in reducing the waiting list and implementing the principles of self-determination.

TRANSPORTATION PROGRAM

The transportation program totals $2.5 billion in fiscal year 2000. Major revenue sources include motor fuel tax receipts ($644 million), titling tax receipts ($493 million), licensing and registration fees ($274 million), bond sale proceeds ($240 million), and federal funds ($588 million). MDOT appropriations include operating expenditures ($874 million), capital expenditures ($1,133 million), local highway user revenue grants ($374 million), and debt service ($139 million). The fiscal year 2000 appropriation also includes the first of two $20 million repayments from the Transportation Trust Fund to the Maryland Transportation Authority (MdTA). The MdTA provided $40 million to finance construction of a parking garage at the Baltimore-Washington International Airport. The fiscal year 2000 budget also assumes 9,193.5 permanent and 159.8 full-time equivalent contractual positions.

The fiscal year 2000 operating budget includes additional expenditures for personnel and new initiatives. The appropriation assumes $4.5 million for the general salary increase and $3.5 million for increasing health insurance costs. The Mass Transit Administration (MTA) will be renegotiating its union contracts shortly after the legislative session, and the new contracts will be effective in fiscal year 2000. The budget assumes an additional $871,000 for union salaries based on annualizing compensation in previous contracts, but does not include any funds for enhancements for a new contract. At this point it is unclear what the costs associated with the new contract will be. New initiatives in fiscal year 2000 include $2.0 million to implement a new interjurisdictional funding agreement for the Washington Metropolitan Area Transit Administration (WMATA), $1.3 million to add WMATA metrorail service on the Green Line, $1.4 million for emergency response teams to assist motorists on State highways around Washington, D.C., Baltimore, and Annapolis, and $1.0 million due to projected contract escalation on the MTA's Maryland Rail Commuter (MARC) system.

In developing the fiscal year 1999 to 2004 Consolidated Transportation Program (CTP), MDOT added $840 million in planned expenditures. The increased funds primarily support highway and transit projects, which received an additional $350 million and $460 million, respectively. New highway initiatives include $52.6 million for east/west intersection improvements in Montgomery and Prince George's Counties, $42.6 million for improvements to U.S. 113 in Worcester County, $36.6 million for U.S. 29 improvements in Montgomery County, $36.2 million to improve the I-70 and I-270 interchange in Frederick County, and $33.0 million to expand U.S. 220 in Allegany County. Transit initiatives include $153.7 million to double-track all light rail lines, $92.0 million to overhaul Baltimore metro's railcars, and $44.4 million to rehabilitate metro escalators.

HIGHER EDUCATION

For fiscal year 2000, the Governor announced that funding for higher education was to be the top priority of the budget. State support for four-year public institutions is $774.1 million, an increase of 10.2%, and the State's private colleges and universities will receive $36.6 million. State support for the University System of Maryland, consisting of 13 institutions, was $719.8 million, an increase of 10.5%. There were many system-wide enhancements including an increase of $4.2 million to maintain resident tuition increases at 4%; a $3.0 million increase to the University of Maryland University College to continue implementation of a plan to increase State support to $19 million by fiscal year 2003; and $2.1 million for scheduled upgrades to the library information systems. There was also an additional $7.0 million for the flagship initiative at the University of Maryland, College Park.

Two State supported institutions are not part of the University System of Maryland. Morgan State University's State appropriation is $43.4 million, an increase of $5.1 million, or 13.2%. Enhancements at Morgan State include reducing student/faculty ratios, library improvements, technology enhancements, and moderating resident tuition increases. The State support for St. Mary's College of Maryland is $12.7 million, an increase of $305,000 which is consistent with the statutory formula for funding the college.

The fiscal year 2000 appropriation includes actions taken by the General Assembly to the Governor's proposed budget, including $893,000 in reductions at three institutions; a $2.1 million reduction throughout the University System of Maryland; a $1.8 million reduction throughout higher education for the phase-in of the State employee general salary increase; and increases provided in Supplemental Budget No. 3. The fiscal year 1999 revised appropriation includes a deficiency appropriation across the USM for early retirement.

Baltimore City Community College, which was budgeted through a statutory formula for the first time in fiscal year 2000, received $22.9 million. The State's remaining community colleges received $119.2 million under the Cade funding formula and an additional $21.8 million from the State's support for teachers' retirement payments. There were also large increases in financial aid programs administered through the Maryland Higher Education Commission. The appropriation for State financial aid increases by 19.4%. The most noteworthy increase was for the new HOPE scholarship program, which provides awards for students in certain disciplines that maintain a 3.0 grade point average and work in Maryland following graduation. The first $5.1 million is for the students studying computer science and other technology fields, and an additional $1.5 million is for education majors and others pledging to be teachers. There was a net increase of $3.0 million for the remaining financial aid programs. Additional discussion of higher education funding can be found under Part L - Education.

TOBACCO SETTLEMENT - USE OF FUNDS

In the last four years, the attorneys general of 41 states and Puerto Rico, along with several local governments, have filed civil suits against several corporations in the tobacco industry for violations of their state's laws. Many of the suits allege consumer protection violations and injury to the state government for increased Medicaid health care costs related to caring for citizens with tobacco-related illnesses.

Maryland filed suit in the Circuit Court for Baltimore City against the tobacco companies in May 1996 seeking $16 billion in damages ($3 billion in restitution, $3 billion in compensatory damages, and $10 billion in punitive damages). The Circuit Court dismissed 9 of the original 13 counts of the complaint, leaving 4 counts concerning consumer protection and antitrust violations, and reducing the damages to $3 billion.

On November 23, 1998, negotiations were completed between the tobacco companies and a group of eight attorneys general. This new national settlement, which does not require federal legislation or approval, has been agreed to by all of the remaining states, the District of Columbia and five territories. The settlement includes provisions creating a charitable foundation to study and fund programs to reduce underage smoking and substance abuse, limiting access to tobacco products by underage persons, limiting advertising including banning the use of billboards and cartoons such as Joe Camel, and limiting the sponsorships of events and merchandising using tobacco brand names. Lawyers fees are to be paid at a liquidated rate or subject to arbitration. Although the payments are to be made in perpetuity, the value of the payments to Maryland for the first twenty-five years before any adjustments and possible federal recoupment for Medicaid would be approximately $4.9 billion dollars.

As part of the settlement agreement, each state must enact legislation related to non-participating manufacturers. This provision of the settlement, referred to as the "model statute", is designed to prevent non-participating manufacturers from gaining a price advantage over participating manufacturers due to the settlement costs. Senate Bill 305/House Bill 671 (passed) require a tobacco product manufacturer that sells cigarettes in Maryland to either participate in the Master Settlement Agreement or to deposit into a qualified escrow fund by April 15 of each year, specified amounts per unit sold in the State. Funds are released from the escrow account for two purposes: payment of any judgment or settlement against the tobacco product manufacturer; and any refund to the tobacco product manufacturer for excess payments into the escrow account during the year. Any funds not released from escrow will revert back to the tobacco product manufacturer 25 years after the date on which they were placed into escrow. A tobacco product manufacturer must annually certify to the Attorney General that it is in compliance with the bill's requirements, and the bill authorizes the Attorney General to bring a civil action on behalf of the State against any tobacco product manufacturer that fails to place the required funds into escrow.

Because the settlement does not contain any requirements for spending the annual payments made by the tobacco companies, each state must decide when and how to spend the funds received from the settlement. A number of bills were introduced this session related to the use of the tobacco settlement funds. Senate Bill 257/Senate Bill 772 (both failed), would have established a task force to study the settlement, the use of settlement funds by other states, options for the State spending of the funds, and the impact of the settlement on state programs. Senate Bill 394/House Bill 596 (both failed) would have created the Maryland Tobacco Control Foundation to receive one-third of the settlement funds to provide grants for tobacco education and other programs. Senate Bill 685/House Bill 903 (both failed) would have directed five percent of the settlement funds to the Tri-County Council of Southern Maryland for implementation of the agricultural plan which included tobacco farmers. Senate Bill 639 (failed) would have directed $10 million of the settlement funds to the University of Maryland Medical System Greenebaum Cancer Center.

Senate Bill 334/House Bill 751 (both passed) create the Cigarette Restitution Fund for settlement payments. All payments received by the State related to the tobacco settlement are to be placed into this nonlapsing fund. Monies in the fund can only be spent through appropriations in the annual State budget, and a minimum of $100 million or 90% of the funds available must be appropriated. In addition, 50% of the funds must be appropriated for programs with specific purposes such as:

• Reducing the use of tobacco products by minors;
• Implementation of the Southern Maryland Regional Strategy-Action Plan for Agriculture adopted by the Tri-County Council for Southern Maryland with an emphasis on alternative crop uses for land currently used for growing tobacco;
• Public and school education campaigns with an emphasis on areas previously targeted by tobacco manufacturers advertising;
• Smoking cessation programs;
• Purposes of the Maryland Health Care Foundation;
• Primary health care in rural areas and areas previously targeted by tobacco manufacturers advertising;
• Prevention, treatment and research, including capital projects, concerning cancer, heart disease, lung disease, and tobacco product use and control; and
• Substance abuse treatment and prevention.

For each program receiving funds, statements of vision, mission, goals, and objectives, along with performance indicators are to be included with the budget submission, and an annual report is required evaluating the effectiveness of the prior year's spending.

The Joint Chairmen's Report for the Fiscal Year 2000 Budget includes language with respect to the tobacco settlement that it is the intent of the General Assembly that funds from the Cigarette Restitution Fund shall be appropriated to the Tri-County Council to implement the Southern Maryland Regional Strategy-Action Plan for Agriculture with an emphasis on alternative crop uses for agricultural land now used for growing tobacco. The Joint Chairmen's language expresses the intent that a deficiency appropriation of not less than $2.5 million be provided in fiscal year 2000 and an appropriation of not less than $9 million be provided in fiscal year 2001. In subsequent years not less than 5% of funds received by the State under the Master Settlement Agreement shall be provided for such purposes, with the appropriations made from funds credited to the Cigarette Restitution Fund, and for particular programs or activities subject to the program planning and reporting requirements.

STATE RESERVE FUND

The allowance originally provided a general fund appropriation of $169.4 million. This consisted of appropriations to the Revenue Stabilization Fund (Rainy Day) and the Dedicated Purpose Fund. A $107.1 million appropriation to the Rainy Day Fund represented the unappropriated fiscal year 1998 surplus in excess of $10.0 million per the provisions of Chapter 4, Acts of 1998. Dedicated Purpose Fund appropriations included the initial tobacco settlement payment of $54.3 million, and $8.0 million to design four higher education capital projects contingent on enactment of the tobacco tax increase.

The legislature reduced the Rainy Day Fund appropriation by $24.9 million to increase the general fund balance. Budget language was also adopted to authorize the Governor to transfer $6.0 million to the Public Service Commission for public education regarding utility deregulation. See Exhibit A.2 for a summary of the activity and status of the Rainy Day Fund. The $8.0 million appropriation to the Dedicated Purpose Fund for planning higher education projects was eliminated and budget bill language was adopted authorizing the Governor to use $8.0 million from the Rainy Day Fund for the projects. The appropriation of tobacco settlement moneys to the Dedicated Purpose Fund is also eliminated, contingent on the enactment of legislation to establish a Cigarette Restitution Fund Senate Bill 334/House Bill 751 (both passed). Budget language specifies that the reduction would allow the settlement moneys to be credited to the restitution fund established by the legislation.

Legislation affecting the State Reserve Fund was passed to alter provisions of the Rainy Day Fund pertaining to transfers, and to create the Joseph Fund to set aside moneys to assist economically disadvantaged individuals. House Bill 625/Senate Bill 333 (both passed) were emergency bills which modified provisions in the State Finance and Procurement Article, which stipulated that if the budget used funds from the Rainy Day Fund, any reductions to appropriations in the budget would also require reductions from the Reserve Fund transfers on a dollar for dollar basis. This was designed to keep money in reserve unless absolutely needed. This provision became problematic in the 1999 session due to a combination of factors. Funds had been appropriated to the Rainy Day Fund to support future spending because of revenue losses expected from the income tax reduction. The Governor proposed to transfer $160.0 million from the Rainy Day Fund to support the fiscal 2000 budget. Because the Governor also balanced the budget on the proposed tobacco tax increase, any reductions made to the budget to mitigate the proposed tax would also result in revenue loss from Reserve Fund transfers. The legislation provides that if the budget as submitted includes a transfer from the Reserve Fund, the General Assembly has the option of reducing the reserve fund through the budget.

House Bill 184/Senate Bill 142 (both passed) create the Joseph Fund within the State Reserve Fund. This fund would consist of appropriations made by the Governor, for the purpose of assisting the economically disadvantaged. A Joseph Fund Board would be established to have a role in the fund's oversight and use. The two bills are slightly different, thus the exact role, timing, and use of moneys will depend on which version is signed into law. Further discussion of the Joseph Fund can be found under the Part M - Human Resources.

Exhibit A.2
Revenue Stabilization Fund
(Rainy Day Fund)

PERSONNEL

Employee compensation enhancements constitute a major component of the fiscal year 2000 budget. Five elements account for a general fund increase of $96.8 million over fiscal year 1999 spending. A $1,275 salary increase per employee is provided, but will be phased-in to provide a take-home increase in salary of $957 per employee. The Governor's proposed implementation schedule is currently to provide half of the $1,275 on July 1 and the remainder on January 1, 2000. The $53 million general fund cost of the increase was not fully funded by the legislature. Agencies will be asked to absorb $5.7 million of its cost.

Funding for transitioning to a new standard salary plan affecting 44,000 positions adds $11 million. The new plan increases the number of steps from 6 to 16, addressing the limitation on salary growth affecting 63% of State employees who are at the highest step under the current pay plan. Pay increments in this new plan account for an increase of $19.2 million. A new pay plan in the Judiciary adds $3 million. Pay-for-performance has been expanded for fiscal year 2000 to include $1,000 bonuses for employees receiving an evaluation of "outstanding" and $500 for "exceeds standards". Half of the $12.6 million cost of these bonuses was funded in the budget. The other half will be absorbed by State agencies. A $600 per employee State match for deferred compensation contributions, required under Chapter 530, Acts of 1998, was funded at a cost of $10.3 million, based on the assumption that 60% of eligible employees would participate in the first year.

The final budget authorized a total of 75,783 positions for fiscal year 2000, representing an increase of 2,682 positions over fiscal year 1999. The legislature reduced the Governor's fiscal year 2000 request by 81 positions, mostly in the Department of Public Safety and Correctional Services, Office of the Comptroller, and Department of Health and Mental Hygiene. The legislature also added a position to the Judiciary and reduced 16 positions from the fiscal year 1999 deficiency request. Exhibit A.3 details personnel actions taken in the fiscal year 1999 and 2000 budgets by the Governor and the legislature.

During fiscal year 1999 a total of 238 positions were created in higher education institutions through independent personnel authority. The Board of Public Works created 23 positions across seven agencies. In accordance with early retirement legislation enacted for the University System of Maryland (Chapter 675, Acts of 1998), 125 positions were abolished across the system's institutions. Within the MDOT, the merger of the Maryland Port Administration police force with the MdTA police force (authorized through Chapter 514, Acts of 1998) resulted in the abolition of 22 positions.

Exhibit A.3
Fiscal 1999 and Fiscal 2000 Position Summary

From fiscal year 1999 to fiscal year 2000 an additional 2,773 positions were proposed, driven mostly by the conversion of 1,461 contractual positions across various State agencies. About half of the new positions proposed were for higher education institutions. Growth also occurred in the Judiciary and DHR. The Child Welfare Workforce Initiative (Chapter 544, Acts of 1998) directed the department to discontinue the use of contractual staff for child welfare caseworker and aide positions by the close of fiscal year 2000, resulting in the addition of 469 regular positions.

BY THE NUMBERS

A number of exhibits summarize legislative budget action. These exhibits are described below:

Exhibit A.4 provides perspective on total budget change, general fund changes, and spending affordability. Appropriations for fiscal year 2000 are about 3.9% higher than spending levels authorized for the current fiscal year. Expenditures as measured under the Spending Affordability concept have grown by 5.83%, remaining below the 5.9% growth limit established by the Spending Affordability Committee.

Exhibit A.5 shows the impact of the legislative budget on the general fund balance for fiscal year 2000. The fiscal year 1999 balance, along with projected revenues of $8.7 billion, will support $8.9 billion of fiscal year 2000 spending. After estimated reversions of $25.0 million, the projected balance at the close of the fiscal year is $12.7 million.

Exhibit A.6, the fiscal note on the budget bill, depicts the Governor's allowance, legislative reductions, and final appropriations for fiscal years 1999 and 2000 by fund source. The Governor's original budget request provided for $17.8 billion in fiscal year 2000 expenditures and fiscal year 1999 deficiencies, increased by $169.8 million through Supplemental Budgets 1, 2, and 3. The legislature made $342.5 million of reductions to the total budget requests, resulting in appropriations of $50.6 million for fiscal year 1999 and $17.5 billion for fiscal year 2000.

Exhibit A.7 illustrates budget changes by major expenditure category by fund. Total spending grows 3.9%. Debt service increases by 8.9%, aid to local governments increases by 3.0%, State agency spending rises 4.5%, and entitlements decrease 0.2%. Paygo capital expenditures increase by 18.5%. $90.2 million was appropriated to reserve funds in the fiscal year 2000 budget.

OUTLOOK FOR FUTURE BUDGETS

Exhibit A.8 projects general fund revenues and expenditures through fiscal year 2004. Revenue increases are forecast due to reserve fund transfers, anticipated future revenue revisions by the Board of Revenue Estimates, and legislation which increased tobacco taxes. Increases are offset somewhat by anticipated revenue reductions resulting from legislation to implement utility deregulation, change the accounting for funding for the Public Service Commission and Uninsured Employers' Fund, establish teacher incentive tax credits, and modify the inheritance tax and other revenue sources. These revenue estimates also incorporate the effects of the income tax reduction enacted during the 1997 session. The 10% reduction is being phased-in over a multi-year period through fiscal year 2002.

Expenditure increases are projected for base budget increases, in addition to funding or fully phasing-in the administration's initiatives and various legislation. Legislation with significant outyear costs was passed relating to utility deregulation, HOPE scholarships, class size reduction, teacher incentive programs, State Police retirement enhancements, after school programs, Medicaid funding, and developmentally disabled programs.

As seen in Exhibit A.8, projected expenditures exceed available revenues. Assuming no significant changes to State agency programs and expenditures, and even after drawing down the State Reserve Fund to the 5% of general fund revenue statutory target, additional adjustments in the magnitude of $100 million would be needed to balance the fiscal year 2001 budget. Larger reductions would be needed to balance the fiscal year 2002 budget. These shortfalls will need to be made up through a combination of programmatic reductions, revenue increases, or some combination of the two.

Exhibit A.4
Perspectives on Budget Change

Exhibit A.5
General Fund Impact / Spending Affordability Impact

Exhibit A.6
Fiscal Note
Summary of the Budget Bill -- House Bill 120

Exhibit A.7

State Expenditures -- General Funds

State Expenditures -- Special and Higher Education Funds

State Expenditures -- Federal Funds

State Expenditures -- All State Funds

State Expenditures -- All Funds

Exhibit A.8
General Fund Budget Projections

CAPITAL BUDGET

SUMMARY

The 1999 General Assembly enacted a capital budget totaling $2.2 billion including a $1.1 billion transportation program. Of the total amount, $448 million is funded with general obligation bonds; $1.5 billion is funded on a pay-as-you-go (Paygo) basis in the operating budget; and $265 million is funded with revenue bonds, including higher education academic bonds ($25 million) and transportation bonds ($240 million). Exhibit A.9 presents an overview of the State's capital program for fiscal 2000. Exhibit A.10 shows the sources and uses of the funds for the nontransportation capital program.

General obligation bonds totaling $448.7 million are authorized in the Maryland Consolidated Capital Bond Loan of 1999, House Bill 143 (passed), and various individual bond bills for independent colleges and universities, private hospitals, and legislative initiatives. This is offset by deauthorizations of $3.7 million in previously authorized general obligation debt for a net new debt authorization of $445 million. The Maryland Consolidated Capital Bond Loan includes projects for:

• State facilities including State colleges and universities and State correctional facilities;
• Health and social service facilities such as senior citizen and adult day care centers, juvenile services facilities, and community mental health, disabilities and addictions facilities;
• Environmental programs such as the Chesapeake Bay Water Quality, asbestos abatement, and Rural Legacy programs.

Exhibit A.11 lists capital projects by fund source. The individual bond bills are listed in Exhibit A.12.

Exhibit A.9
Summary of the Capital Program as Enacted for the 1999 Session

Exhibit A.10
Non-Transportation Captial

Exhibit A.11
Capital Program As Enacted

Exhibit A.12
Legislative Projects - 1999 Session

DEBT AFFORDABILITY

The Capital Debt Affordability Committee recommended a limit of $445 million in general obligation bonds to be authorized for fiscal 2000. The General Assembly authorized $448.7 million in new general obligation bond debt, offset by the deauthorization of $3.7 million in previously authorized debt, for a net new general obligation debt authorization of $445 million. This amount conforms to the recommendation of the Capital Debt Affordability Committee.

PUBLIC SCHOOL CONSTRUCTION

The funds available in fiscal 2000 for public school construction total $255 million. Funding is provided through a general obligation bond authorization of $90 million and $165 million in general obligation fund Paygo funding. Of this amount, $187.7 million has been allocated by the Board of Public Works, leaving $67.3 million (26.4%) to be allocated by the Board of Public Works in May 1999. The following table shows the distribution.

HIGHER EDUCATION

Funding authorized for higher education for fiscal 2000 totals $151 million. This includes $108.5 million in general obligation bond authorization, $25 million in academic revenue bond authorization, and $17.5 million in general funds. The operating budget as introduced, contained an appropriation of $8.04 million to the Dedicated Purpose Fund for the planning and design of four capital projects:

• University of Maryland, Baltimore - Health Sciences Research Facility II;
• University of Maryland Baltimore County - Chemistry/Physics Building;
• Bowie State University - Science Building; and
• Frostburg State University - Science Building.

The appropriation was contingent on enactment of legislation increasing the tobacco tax. The five-year Capital Improvement Program indicated that construction on these four projects, and three additional science facilities at other university system institutions, would have been accelerated from between two and six years had the tobacco tax been increased by $1.00.

The General Assembly struck the contingent language on the Dedicated Purpose Fund and instead authorized the Governor to use up to $8.04 million of the Revenue Stabilization Fund (Rainy Day Fund) to plan and design the four university projects. Given the smaller 30 cent increase in the tobacco tax, it is unclear whether construction of any of the science related projects will be accelerated.

PROGRAM OPEN SPACE

The fiscal 2000 budget includes $74.9 million from transfer tax revenues for Program Open Space (POS) land acquisition and development. The following table shows the allocations among the various categories.

WMA=Wildlife Management Area
NRMA= Natural Resource Management Area

In the fiscal 2000 budget, the Department of Natural Resources continued the practice of deauthorizing some projects in order to transfer the authorization to other projects. This practice allows funds sitting in dormant accounts to be reprogrammed to the areas where land is actually available for purchase. The following table shows the projects being deauthorized and the new authorizations.

PROPERTY TRANSFER TAX REVENUE ADJUSTMENTS

Annual appropriations for Program Open Space (POS) are based on an estimate of property transfer tax revenues. Transfer tax revenues have in recent years fallen short of estimates, but in fiscal 1998 actual revenues exceeded projected estimates by $11.4 million and are included in the fiscal 2000 allowance. Current estimates indicate that the fiscal 1999 transfer tax attainment will exceed the estimate on which the fiscal 1999 budget was based by approximately $13.4 million. Senate Bill 637, (passed) allows these additional revenues to be added to the fiscal 1999 budget by budget amendment. Absent this legislation, these funds would be allocated in the fiscal 2001 budget. Under the transfer tax distribution formula, the State POS program will receive $5.17 million of these funds. The distributions among all programs funded by the property transfer tax will be:

ENVIRONMENT

Fiscal 2000 capital funding for environmental programs totals $333 million. This is more than double the $165.2 million included in fiscal 1999. The majority of the increase ($143.8 million) occurs in the Water Quality Revolving Loan Fund which provides loans to counties and municipalities to finance water quality improvement projects. Several large projects in Baltimore City and Montgomery receive a majority of the loan financing. The activity level for the revolving loan fund is projected to drop from the fiscal 2000 level of $172 million to approximately $65 million annually through fiscal 2004.

OVERVIEW OF STATE ASSISTANCE TO LOCAL GOVERNMENTS

State assistance to local governments accounts for about 26 percent of State spending, exclusive of federal funds. This assistance includes direct aid to county and municipal governments, school boards, library boards, community colleges, and local health departments. In fiscal 2000, $3 billion in direct aid will be distributed through more than 50 different programs. Over $2.2 billion or 74 percent of this direct aid is targeted to public schools. The fiscal 2000 budget appropriation for direct aid to local governments represents a $118.6 million or 4.1 percent increase over the prior year.

In addition, the State will pay $421 million for the employer's share of retirement costs for local teachers, librarians, and community college faculty who are members of either the teachers' retirement or pension systems maintained and operated by the State. The State payments do not flow through the local government, but are paid directly to the State Retirement Agency.

The State assumption of functions or responsibilities performed by local governments is another aspect of State/local fiscal relationships. In the 1990s, the State assumed responsibility for the Baltimore City jail and community college and increased funding for the Washington Metropolitan area transit system. In the case of the Baltimore City jail and community college, State costs were partially offset by reductions in direct State aid to the city. Beginning in fiscal 1995, the State also assumed responsibility for processing Baltimore City arrests through a State-run central booking facility. The total cost for these assumed functions is $127.3 million in fiscal 2000.

Overall State assistance to local governments, including the recently assumed costs, totals over $3.5 billion in fiscal 2000. This amount is a $103.5 million or 3 percent increase over fiscal 1999. Annual growth in aid, including the cost of assumed functions, has averaged 4.7 percent over the last ten years. (See Exhibit A.13 for a summary of State aid since fiscal 1995 and Exhibit A.15 for county-by-county amounts for fiscal 1998 through 2000.)

Exhibit A.13