Part A
Budget and State Aid

Operating Budget

As enacted during the 2000 session Senate Bill 150 (the Budget Bill) provides $19.6 billion in appropriations for fiscal year 2001; an increase of $1.6 billion over fiscal year 2000. General fund appropriations are $1.1 billion greater than current spending authority. This level of growth does not accurately portray change in the operating budget, due to large allocations of dollars to one-time Paygo capital projects and the State Reserve Fund. Exclusive of these appropriations, the operating component of the budget grows by $906 million (5.6 percent), and general funds grow by $601 million (7.0 percent). The budget also allocates $266.3 million of tobacco settlement payments from the CRF.

State agency operations constitute nearly one-half of the budget. Health, education, and public safety-related agencies receive nearly two-thirds of dollars allocated for agencies. Growth in agency spending is partly attributable to employee compensation and new personnel. Employee compensation enhancements provide for a 4 percent general salary increase, which will be effective on November 15, 2000, salary increments, and upgrades for selected positions. In addition, 2,038 new positions are created in the budget. Many of these positions represent contractual conversions, address deficiencies in the public safety and juvenile justice areas, and provide for higher education enhancements.

A number of enhancements and initiatives are also funded in fiscal 2001, through different fund sources. In a departure from prior years, where general funds largely comprised new spending, the budget enacted during the 2000 session implements or expands programs with general funds, special funds from the CRF and local contributions, and federal dollars. Highlights of selected items are discussed later in this section.

Education programs continue to fare well in the fiscal 2001 budget. General fund contributions to State colleges and universities increase $86.9 million (10.9 percent) to further enhance post-secondary programs. Pass-through education and library aid to local jurisdictions rises $124 million. The operating budget includes $174.1 million for public school construction. In combination with bond funding, $261 million will be available for school construction. Other education aid increases were provided through formula increases to the community colleges, scholarship programs, and aid to private colleges and universities. At the primary/secondary education level, new funding was provided for academic intervention programs, the Baltimore City remedy plan, and school readiness. Funding for non-public school textbooks was also made available for the first time, through the provision of $6 million from the CRF.

State spending on entitlement programs also rose substantially, due largely to higher Medicaid costs for medical inflation and changes in utilization. Cost increases are offset somewhat by a declining Temporary Cash Assistance caseload.

Governor's Budget Proposal

The Governor submitted the original budget and two supplemental budgets totaling $19.8 billion, which was 9.5 percent higher than the fiscal 2000 working appropriation (including deficiency appropriations applied to the base). On a Spending Affordability basis, the proposed budget (including all deficiency and supplemental spending) provided for an increase of 7.82 percent, or $106.8 million over the 6.9 percent spending limit recommended by the Spending Affordability Committee.

The allowance provided substantial increases for one-time Paygo capital project spending, including $50 million in general funds that were appropriated to the Dedicated Purpose Fund for transportation capital projects. Other notable elements of the allowance included $400 million to the Revenue Stabilization Fund, approximately $250 million from the CRF for health and education-related initiatives, and nearly $90 million to enhance higher education spending.

Legislative Consideration of the Budget

The legislature reduced the Governor's fiscal 2000 deficiency items by $33.6 million, and pared the fiscal 2001 allowance by $190.3. Of this, approximately $173 million was reduced from general funds. The largest reduction, $75 million, was made to the appropriation to the State Reserve Fund to offset projected revenue losses associated with legislation passed during the session. Examples include the partial repeal of the inheritance tax, House Bill 13/Senate Bill 160 (both passed) ($10.9 million impact), the Governor's Teacher Salary Challenge Program, House Bill 1247/Senate Bill 810 (both passed) ($39.5 million impact), and the expansion of the Earned Income Tax Credit, Senate Bill 240 (passed) ($12.7 million impact). A reduction of $26.7 million was made to the fiscal 2000 deficiency appropriation for Medicaid, although most of this deficiency is authorized to be funded through the CRF. Other large general fund reductions were made to Paygo capital projects ($7.4 million), turnover expectancy based on statewide vacancy rates ($5.0 million), and overbudgeted funds for computer equipment ($3.2 million).

During the session, the legislature was again faced with the challenge of reducing the budget to stay within the limits recommended by the Spending Affordability Committee. Although the allowance exceeded the 6.9 percent limit by $67 million when submitted in January, this amount was increased to nearly $107 million by additional spending in Supplemental Budgets Numbers 1 and 2. The need to make reductions during a time of unprecedented surpluses made the task of identifying reductions more difficult. Ultimately, $109.6 million in spending affordability applicable reductions were made, bringing the budget to within the prescribed limit.

Revenue availability did not play a pivotal role this session, given the substantial surplus and reserve fund balance. The BRE did not modify the revenue estimates in March 2000, citing the fact that the economy continued to perform strongly relative to the projections that were revised in December.

Final Budget

The final budget for fiscal year 2001 appropriated $19.6 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 21 percent of the budget, followed by approximately 16 percent 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 $19.6 Billion Budget
Where It Comes From: Budget by Fund Source

Where it Goes: Budget by Purpose:

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

Cigarette Restitution Fund Enhancements

The Tobacco Settlement was a watershed in the long history of tobacco litigation. On November 23, 1998, five major tobacco companies agreed to settle all outstanding litigation with 46 states, 5 territories, and the District of Columbia. Under this unprecedented agreement, the settling manufacturers will pay the litigating parties approximately $206 billion over the next 25 years and beyond, as well as conform to a plethora of restrictions on marketing to youth and the general public.

Based on the Department of Budget and Management's (DBM) assumptions, approximately $304 million is available for fiscal 2000 and 2001. This amount is sufficient to fund the $266 million appropriated in the budget for fiscal 2000 deficiencies and fiscal 2001 operating expenses. However, revenue streams would be lower if the attorney fees and volume adjustments are different from DBM's assumptions:

• Attorney Fees: DBM assumes that attorney fees are only 6.25 percent of the settlement funds, but fees could be as high as 25 percent since this is the level in the contract between the State of Maryland and the law firm of Peter Angelos. Until the matter is settled by the courts, 25 percent of the settlement will remain in escrow.

• Volume Adjustment: DBM assumes a 3.5 percent decline in 2001 and an average decrease of 2 percent in subsequent years. This is the historical trend without price changes. However, declines in consumption could be greater because the collective impact of higher taxes, higher prices, increased enforcement, and public health programs is likely to have an impact on national consumption.

The Cigarette Restitution Act of 1999 established a special fund for tobacco settlement payments and mandated that at least 50 percent of the annual appropriation be expended on health and tobacco-related priorities. The fiscal 2001 budget conforms to the statute by allocating $102.5 million or 63 percent of the funds to health and tobacco-related programs and the remaining $61.3 million or 37 percent to education programs. Additional funds have been appropriated for fiscal 2000 deficiencies with $100.0 million for Medicaid and $2.5 million for crop conversion. Exhibit A.2 summarizes the allocation of CRF dollars in fiscal 2000 and 2001.

Exhibit A.2
Cigarette Restitution Fund in Fiscal 2000 and 2001

*Funding is budgeted for salaries but may be used for salaries, intervention, city remedy, and early childhood programs under SB 810/HB 1247.

The impact of the fiscal 2001 initiatives funded from the restitution fund on future fiscal years is uncertain. Many of the initiatives will create ongoing programs that will need continued fiscal support. If the tobacco payments are lower than estimated because of higher attorney fees or volume adjustments, then there may not be sufficient funding for programs started in fiscal 2001 or to support future initiatives.

University of Maryland Medical System (UMMS) Urban Health Care System

The budget contains $3.25 million for a fiscal 2000 deficiency and $3.25 million for fiscal 2001 to support operating costs of UMMS' primary care network. Serving the residents of West Baltimore, the network provides primary care and mental health services at community-based clinics. Since the network is not financially self-sufficient, in the past UMMS has supported the network with a subsidy from the hospital. However, UMMS reports that the hospital has been unable to continue the same level subsidy support because of the financial difficulties that are the result of high rates of uncompensated care. To assist UMMS in maintaining the same level of services at the network clinics, the State budget partially funds the hospital's subsidy to the network for two years. UMMS reports that it may request a third year of funding in the next budget cycle, but in the meantime, it will seek other sources of financial support for the network.

DDA Waiting List Initiative

With an additional $26.7 million, the fiscal 2001 budget contains funding for the third year of the Waiting List Initiative in the Developmental Disabilities Administration. The goal of the five-year initiative is to significantly reduce the backlog of 5,000 developmentally disabled individuals who were on the waiting list for community-based services as of fiscal 1998. By the end of fiscal 2001, the administration expects that over 4,000 individuals on this waiting list will have been placed in a combination of residential, day, or in-home support services.

Baltimore City Circuit Court

In an effort to substantially change the way the Baltimore City court system operates, and to further the progress of recently implemented criminal justice system reforms, the Criminal Justice Coordinating Council for Baltimore City, in consultation with Baltimore City criminal justice system stakeholders, devised a plan for unclogging the beleaguered court system . This plan entails expanding the use of the courtroom at the Central Booking and Intake Facility (CBIF) to include a full-time five-day a week schedule as a mechanism for expediting the processing of less serious criminal cases. This will free up resources for the processing of more serious criminal cases. The fiscal 2001 State budget includes an additional $6.7 million and 85 new permanent positions to support the planned increased utilization of the courtroom at the CBIF, and to assist State agency operations in the Baltimore City criminal justice system.

The General Assembly also adopted budget language and committee narrative requiring reports documenting the progress of reform initiatives and expanded use of the CBIF courtroom.

Juvenile Justice Initiatives

The fiscal 2001 appropriation for the Department of Juvenile Justice was $157 million, $21.2 million over the department's fiscal 2000 budget (15.6 percent). In addition, the fiscal 2001 budget bill includes a fiscal 2000 deficiency appropriation of $6.4 million. This significant increase was primarily a response to the serious and very public problems which surfaced in November 1999 relating to allegations of abuse at the department's Youth Centers in Western Maryland. Most of the funding increases, however, relate to other funding shortcomings identified after the allegations of abuse prompted both an independent review of the department's operations and the dismissal of the Secretary and other senior management. The major increases include:

Improved Training ($459,000): Mandated certified training through the Maryland Correctional Training Commission and increased training for all direct care staff.

Enhanced Oversight ($738,000): Additional program monitors, inspectors, independent monitors, and a new Deputy Secretary to oversee professional responsibility and accountability.

After Care Initiatives ($1.75 million): Additional staff for an intensive aftercare program targeted at youth in Baltimore City and Prince George's County coming out of the Youth Centers and the Hickey Enhanced Program, plus an additional pool of flexible funds for aftercare services.

Sex Offender Programming at Hickey School ($2.0 million, including $1.0 million fiscal 2000 deficiency): Funds to cover the cost of the sex offender program run on the grounds of the Hickey School. This program was originally excluded from the new Hickey contract as the department hoped to open the program as a Residential Treatment Center (RTC). However, the facility is still awaiting accreditation as an RTC.

Increased Funding for Residential Per Diem Placements ($8.2 million including $2.3 million fiscal 2000 deficiency): The department's policy of graduated sanctions has resulted in additional deep-end residential placements. Per diem placements, originally budgeted at an annual Average Daily Population (ADP) of 220 in fiscal 2000, were up to 362 at the end of the third quarter of fiscal 2000.

Increased Drug Testing for Youth on Probation ($500,000): Funds for additional urinalysis to act as a deterrent for youth on probation, but also to screen youths not yet detected as substance abusers.

Spotlight on Schools ($726,000): Further expansion of the Spotlight on Schools Program which places probation officers in schools to deal directly with troubled youth.

Program Evaluation ($1.05 million): A variety of initiatives to add permanent research and program evaluation staff and to use consultants to fully evaluate existing operating and capital programming in the department as well as develop new programming.

Information Technology ($2.6 million including $2.1 million fiscal 2000 deficiency): Costs associated with the development, maintenance, and management of the department's Automated Support System for Information and Services Tracking (ASSIST) and wide area network.

Improvements at the State Run Facilities ($2.1 million including $754,000 fiscal 2000 deficiency): A variety of program initiatives primarily at the Youth Centers, Waxter (improvements in the girl's programming), and Noyes.

Parole and Probation Initiatives

The fiscal 2001 budget provides $1.57 million for 54 additional positions in field operations: 41 agents, six field supervisors, and seven office secretaries. These new positions support the initiative to reduce offender recidivism through a more Proactive Community Supervision Model which allows for closer and intensive supervision of offenders in the community. The additional agents will be deployed to reduce caseloads, which will allow agents to more effectively monitor and supervise offenders. Additionally, the fiscal 2001 budget includes $2.4 million to raise the salaries of parole and probation field positions. The affected positions will receive a two-grade salary adjustment effective January 2001.

Correctional Officer Staffing Initiative

The fiscal 2001 budget for the Department of Public Safety and Correctional Services provides $4.97 million for 193 new correctional officer positions. Specifically, 100 positions will be allocated among the following facilities: Maryland House of Correction Annex; Maryland Correctional Institution - Jessup; Maryland Reception, Diagnostic, and Classification Center; Maryland Correctional Training Center; and Maryland Correctional Pre-Release System. The remaining 93 positions are for the Central Booking and Intake Facility in Baltimore City. The positions address staffing shortages and meet the increasing demand on custody staff. The aim of the initiative is to appropriately staff facilities and reduce the department's costly reliance on overtime to man required security posts. Additionally, the budget includes nearly $849,000 for 26 new correctional supervisor positions at the Division of Pretrial and Detention Services.

Lead Paint Initiative

The fiscal 2001 budget includes $5 million in State funds as part of a total $16.8 million commitment among the State, Baltimore City, and the federal government to expand lead abatement, lead poisoning prevention, and lead enforcement efforts. The $5 million State commitment is allocated in the following manner:

• $3.5 million to the Maryland Department of Housing and Community Development for grants to homeowners and landlords to abate lead poisoning hazards in homes and apartments;

• $500,000 to the Maryland Department of the Environment for five new lead inspectors, two new attorneys, and two technical positions to link State and Baltimore City databases; and

• $500,000 to the Department of Health and Mental Hygiene for expansion of the department's lead poisoning prevention and screening efforts, testing capabilities, lead poisoning outreach, and public information and data management.

The budget bill requires all the departments receiving funds from the lead paint initiative to jointly prepare a comprehensive report before the funds may be expended. Strategies for implementation of certain programs, strategies for strengthening current lead laws, methods for improving lead screening of children, and information by jurisdiction on the extent of lead paint problems and funds available to combat the problem, are required to be in report. The report will be submitted to the budget committees for review and comment.

Arts Council and Tourism Funding

The fiscal 2001 budget includes $12.2 million for grants administered by the Maryland State Arts Council. This represents an increase of $1.7 million (16 percent) over fiscal 2000. The General Assembly earmarked a total of $500,000 to specific arts organizations.

The arts council provides grants to arts organizations, community arts development, artists in education, and individual arts from this budget. The council has a goal of providing grants equivalent to 10 percent of an arts organization's operating expenses. The funds provided for fiscal 2001 will allow the council to continue to move in that direction.

Tourism funding also receives significant enhancement in fiscal 2001. Consistent with Chapter 471, Acts of 1997, the Maryland Tourism Development Board receives an increase of $1 million in general funds, to $6 million. The Office of Tourism Development's budget increases by $800,000 for advertising, promotions, and web-site development, and $525,000 is provided for multi-cultural, outdoor nature, and sports tourism marketing to develop and promote these specialty products.

Aid to Nonpublic Schools

After deferring previous requests for aid to the approximately 130,000 nonpublic school students in the State, the Governor included $6 million from the CRF in the fiscal 2001 budget, specifying only that the funds could not be used for sectarian purposes. After much debate, the General Assembly left the funding intact, but attached restrictive budget bill language to the fiscal 2001 appropriation. The language specifies that the funding is to be used only for the purchase of textbooks, with a maximum distribution of $60 per eligible nonpublic school student for participating schools, except that at schools where at least 20 percent of the students are eligible for free or reduced price lunch program, the distribution will be $90 per student.

To be eligible to participate, a nonpublic school must either be approved by or be registered with the State Board of Education, and not charge more tuition to a participating student than the statewide average per pupil expenditure. The statewide average per pupil expenditure was $6,945 in fiscal 1998. Based on a 2.7 percent projected annual increase, the average statewide per pupil expenditure will be approximately $7,500 in fiscal 2001. The language also outlines a process for the distribution of funds, using Pennsylvania's program as a model.

Technology in Maryland Schools

The Technology in Maryland Schools (TIMS) program, first funded in fiscal 1997, is a component of the Governor's Maryland Connected for Learning Initiative. Amid concern over the "digital divide," the fiscal 2001 budget includes additional funds for wiring schools for technology and for grants to schools for software, equipment, and professional development. In addition, the fiscal 2001 budget includes new funds to establish regional technology academies for teachers.

The State's fiscal 2001 school construction program currently includes $9.4 million for 132 school wiring projects. Another 358 public schools in Maryland remain to be funded for wiring for technology. It is expected that another approximately $8 million will be allocated to wiring projects when the remainder of the fiscal 2001 school construction funds are allocated to specific projects in May 2000. In addition, the State plans to borrow, through a master lease arrangement with the Treasurer's Office, up to $25 million in fiscal 2001, and potentially again in fiscal 2002, to accelerate and enhance State support of school wiring for technology projects, with the goal of funding all the remaining schools in fiscal 2001 and 2002. The enhancements include increasing the percentage of State funding, removing the cap based on size, and including the cost of required electrical work.

As part of TIMS, each school is eligible for $42,000 worth of equipment and $8,052 for software and professional development. The fiscal 2001 budget includes $10.3 million, mostly to cover lease payments from previous years.

The Maryland Technology Academy was established by 1998 legislation to provide teachers with intensive learning opportunities on the use of technology to impact student learning. The fiscal 2001 budget includes $250,000 in general funds for the academy, plus an additional $1.68 million in tobacco settlement funds to establish 20 regional programs, working through the eight regional professional development networks already in place.

Transportation Program

Transportation spending totals $2.7 billion in fiscal 2001. Major revenue sources include motor fuel tax receipts ($655 million), titling tax receipts ($548 million), licensing and registration fees ($180 million), bond sale proceeds ($175 million), and federal funds ($693 million). Maryland Department of Transportation (MDOT) appropriations include operating expenditures ($933 million), capital expenditures ($1,271 million), local highway user revenue grants ($405 million), and debt service ($114 million). The budget also appropriates general funds totaling $50 million in the Dedicated Purpose Fund for Woodrow Wilson Bridge replacement and Addison Road to Largo Town Center Metrorail construction. The fiscal 2001 appropriation also includes the last of two payments ($19.9 million in fiscal 2001) from the Transportation Trust Fund to the Maryland Transportation Authority (MdTA). The MdTA provided $39.9 million to finance construction of a parking garage at the Baltimore-Washington International Airport (BWI). The fiscal 2001 budget funds 9,205.5 permanent and 160.4 full-time equivalent contractual positions.

The fiscal 2001 operating budget includes additional expenditures for personnel and increased cost of services, as well as new initiatives. The appropriation assumes $4.2 million for the general salary increase, $3.3 million for employee increments, and $3.3 million for higher health insurance costs. The Washington Metropolitan Area Transit Administration's paratransit costs increase $2.8 million, and inflation and previously approved rail expansions add another $7.8 million to the budget. At the Maryland Aviation Administration, costs for previously approved expansions of BWI piers A and B added $1.8 million to the budget. Certificate of Participation payments for BWI piers A and B expansion and deicing facility work require an additional $2.2 million. Some new initiatives are funded (consistent with MDOT's Managing for Results initiative), including $1.3 million in safety enhancements and $1.4 million in replacement and maintenance work.

In developing the fiscal 2000 to 2005 capital program, MDOT added $2.7 billion in planned expenditures. New funding includes an additional $859 million for Woodrow Wilson Bridge replacement (increasing Maryland's funding to $900 million), $412.2 million for the Addison Road to Largo Town Center Metrorail construction, $117 million for U.S. 29 interchange improvements in Montgomery County, and $97 million in statewide neighborhood conservation projects.

Higher Education

State operating support for public colleges and universities in fiscal 2001 is $859 million, an increase of 10.8 percent; the State's private colleges and universities will receive $41.6 million in State support, an increase of 13.8 percent.

Fiscal 2001 represents the first year of the application of the funding guidelines adopted by the Maryland Higher Education Commission (MHEC) in September 1999 in accordance with State law which requires "operating funding guidelines based on comparisons with peer institutions and on other relevant criteria" [Education Article §10-207(5)]. In developing a proposed funding level for each institution within the University System of Maryland, MHEC incorporated information on the amount of resources, students, facilities and other relevant factors for identified peers, universities of similar size, program mix and location. A university funded at its proposed funding guideline level would be receiving more state support than 75 percent of its identified peer institutions. Under the funding guidelines, the University System of Maryland proposed general fund support in fiscal 2001 is $906 million. Thus, in fiscal 2001, State support of the USM is 87 percent of the recommended funding guidelines.

Two public four-year institutions are not part of the University System of Maryland and are not funded with reference to the new funding guidelines: Morgan State University and St. Mary's College of Maryland. State support for Morgan State University in fiscal 2001 is $48 million, a 10 percent increase. State support for St. Mary's College of Maryland is $13.5 million, approximately $500,000 more than required by the statutory funding formula for the college. The increased funds will be used to increase enrollment by 200 students over the next four years.

State Reserve Fund

This year's budget bill provides a fiscal 2000 general fund deficiency ($25.3 million) for the reserve fund. The deficiency includes $22.3 million to the Dedicated Purpose Fund, representing the reallocation of surplus federal Temporary Assistance to Needy Families (TANF) Block Grant dollars. The remaining $3.0 million restores the balance of the Catastrophic Event Fund, since that amount is to be allocated during fiscal 2000 for drought relief.

The initial fiscal 2001 reserve fund allocation was $496 million. This amount included $400 million for the Rainy Day Fund, $86 million for the Dedicated Purpose Fund, and $10 million for the Joseph Fund.

Monies allocated to the Dedicated Purpose Fund include $50 toward the State's share of transportation projects (see Transportation Program under this section), $30 million representing additional general funds for programs which will be funded with surplus TANF dollars, and $6 million for public education on utility restructuring by the Public Service Commission. A $10 million initial allocation was made to the Joseph Fund, which was created by Chapter 517, Acts of 1999.

In the Rainy Day Fund approximately 80 percent, or $310 million, of the fiscal 2001 allowance represented the unappropriated fiscal 1999 general fund surplus in excess of $10 million, per the provisions of Chapter 4, Acts of 1998. Another $90 million was to offset future revenue needs. The Governor withdrew the additional $90 million appropriated to the Rainy Day Fund through Supplemental Budgets Numbers 1 and 2, in order to provide a portion of the funding for certain Paygo capital projects and other purposes. The legislature made reductions of another $75 million to the Rainy Day Fund to offset revenue losses associated with legislation passed during the session. At the end of fiscal 2001, the Rainy Day Fund balance is projected at $921.1 million, which is equivalent to 9.9 percent of estimated general fund revenues. This level exceeds the statutory 5 percent of general fund revenues level by $456 million. See Exhibit A.3 for a summary of the activity for each fund in the State Reserve Fund for fiscal 2000 and 2001.

Exhibit A.3
Reserve Fund Activity - Fiscal 2000 and 2001
($ In Millions)

By the Numbers

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

Exhibit A.5 shows the impact of the legislative budget on the general fund balance for fiscal year 2001. The fiscal year 2000 balance, along with projected revenues of $9.3 billion, will support $10.1 billion of fiscal year 2001 spending. After estimated reversions of $25.0 million, the projected balance at the close of the fiscal year is $19.5 million.

Exhibit A.6, the fiscal note on the budget bill, depicts the Governor's allowance, legislative reductions, and final appropriations for fiscal years 2000 and 2001 by fund source. The Governor's original budget request provided for $19.9 billion in fiscal year 2001 expenditures and fiscal year 2000 deficiencies, increased by $152.6 million through Supplemental Budgets 1 and 2. The legislature made $225.4 million of reductions to the total budget requests, resulting in appropriations of $316.4 million for fiscal year 2000 and $19.5 billion (less reversions) for fiscal year 2001.

Exhibit A.7 illustrates budget changes by major expenditure category by fund. Total spending grows 9.2 percent. Debt service decreases by 1.3 percent, aid to local governments increases by 5.6 percent, State agency spending rises 6.9 percent, and entitlements rise 5.9 percent. Paygo capital expenditures increase by 30.8 percent reflecting the allocation of surplus monies for one-time spending. Allocations to the State Reserve Fund rise by 143.3 percent, to offset future revenue needs of the State.

Outlook for Future Budgets

Exhibit A.8 projects general fund revenues and expenditures through fiscal year 2005. Forecasted revenue are reduced by the Governor's Teacher Salary Challenge Program, the partial repeal of the inheritance tax, expansion of the earned income tax credit, and modifications to other revenue sources.

Expenditure increases are projected for base budget growth, funding or fully phasing-in administration initiatives, and various legislation. Legislation with significant outyear costs was passed relating to nursing home staffing, the integration of child welfare and substance abuse treatment services, expansion of the Children's Health Program, teacher's scholarship programs, and funding for circuit court masters and jurors per diem payments.

As seen in Exhibit A.8 projected operating expenditures roughly track to available revenues. However, a spending gap results when the outyear Paygo capital funding projections envisioned in the Governor's expenditure forecast are added. Assuming no significant changes to State agency programs and expenditures, and even after drawing down the State Reserve Fund to the 5 percent of general fund revenue statutory target, additional adjustments in the magnitude of $200 million would be needed to balance the fiscal year 2002 budget. A greater magnitude of reduction would be necessary to balance the fiscal year 2003 budget. Shortfalls in the future years would need to be addressed through a combination of programmatic reductions; modifications in the scope, timing, or source of funding for capital project funding commitments; revenue increases; or some combination of these options.

Exhibit A.5
General Fund Impact
($ In Millions)

Fiscal Note
Summary of the Budget Bill - Senate Bill 150

* Includes general fund reversions of $25 million.
** General fund amount includes $150,000 increase to Judiciary's budget for the Criminal Justice Coordinating Council in Baltimore City.
Department of Legislative Services, April 2000