Department of Budget & Management

T. Eloise Foster, Secretary Martin OMalley, Governor Anthony G. Brown, Lt. Governor January 18, 2012

Jobs, Jobs, Jobs

In 2011, Maryland created 8x as many private sector Jobs as Virginia, and 2.5x as many total jobs.

98.5 % Private Sector Job Growth

26,300

3,300

30.28 % Private Sector Job Growth

84% of FY 2013 General Fund Dollars Allocated to Education, Health, and Public Safety

37% Elementary & Secondary Education

10% Higher Education

26% Health

11% Public Safety

16% Other

Student Achievement Rising

MSA: Maryland State Assessment Pass Rate
2013-14 Target 100.0%

90.0%

90.2% 86.0% 87.4% 86.0% 75.1% 80.4%

90.3% 88.7% 82.7%

70.0%

69.6% 68.3% 59.9%

50.0%

65.4%

66.0%

56.7%

39.6%
30.0%

2002-03

2003-04

2004-05

2005-06

2006-07 Baseline

2007-08

2008-09

2009-10

2010-11

Grade 4 Reading

Grade 4 Math

Grade 8 Reading

Grade 8 Math

Expanding Access to Health Care to More than 400,000 Previously Uninsured Marylanders Over 6 Years

* Estimated

Driving Down Violent Crime 17% Since 2006

Fewest State Government Employees per Maryland Resident Since FY 1973

Fiscal Year
7

Fiscal Responsibility
It all starts with fiscal responsibility Triple A bond rating certified by all three rating agencies
One of only 9 states Ratings re-affirmed in 2011

"The stable outlook reflects our view of Marylands economic strength and historically strong financial and debt management policies,... the state has proactively responded to the recent budget structural imbalance " - Standard and Poors, upon affirming Maryland's AAA Bond Rating

Resolved an Inherited Structural Deficit During the 2007 Special Session

The inherited structural budget deficit approached $1.7 billion Special Session Actions Reduced spending by $550 million in FY09 Increased General Fund revenues by more than $800 million in FY09 Approved new recurring revenue source from Video Lottery Terminals (VLTs) Erased structural deficit by FY12 Projected FY12 cash surplus of $290 million
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Post Special Session Projections

Source: Department of Legislative Services

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Impact of National Recession on Maryland Revenues

Since Dec 2007 Board of Estimates Forecast, State Revenues Have Underperformed by More than $14 Billion

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Steady Diet of Cuts

Cumulative Reductions During OMalley-Brown Administration of $7.5 Billion (Including $800 Million in Total Funds Reductions in FY2013)

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Steady Progress in Closing the Recession Driven Deficit

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Streamlining Government
PRIOR ACTIONS
Consolidated State Print Shops ($500k) Centralized Classification Unit ($396k) Applied Stricter Standard for Payment of Emergency Room Claims & Enhanced Audits of Out-of-State Hospitals ($5.5 M) Eliminated DNR Helicopter Unit ($372k) Consolidated Correctional Pre-Release Facilities ($4.7 M) Eliminated Grant for Wine Promotion & Destination Imagination Downsized MHEC ($0.7M) Eliminated 14 DJS management positions ($1M) Reduced OT at DPSCS ($4M) Improved Management of Accident Leave ($3M) Discontinue High School Civics Assessment ($1.9 M) Voluntary Separation Program ($39 M/653 State jobs)

NEW ACTIONS
Close assisted living facilities at Spring Grove & Springfield Hospital Centers ($3.8 M) Insource Fisheries Contract ($700k) Medicaid Smart Payer Initiatives ($22M) Eliminate duplicative modified educational assessment for students ($2.5 M)

Facility Closures During OMalley-Brown Administration

Maryland House of Correction DBED Foreign Offices (3) State Hospitals (5) State Police Barracks Annapolis Welcome Centers (8) Animal Health Laboratories Upper Shore Planning Office Dismas House OFarrell Center
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Reducing the Size of State Government

More than 5,500 positions abolished during the OMalley-Brown Administration
667 positions abolished through voluntary separation program for savings in total funds of $40 million Ongoing annual savings from position abolitions exceeds $200 million

Fewer executive branch positions today than in 2007.

State Employees Share of the Sacrifice

State workers absorbed more than $700 million in salary and benefit cuts
Furloughs and temporary salary reductions FY09 - FY11 No step increases (FY09 - FY12) and no COLA/bonus (FY10 & FY11) Additional ongoing retirement contributions/prescription drug cost sharing (FY 12)
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General Fund Spending Growth FY 2007 to FY 2013

Under Governor OMalley, General Fund spending on K-12 education has increased by almost $1 billion or 22% while General Fund spending on everything else increased by less than $400 million or 4%

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Direct K-12 Education Aid

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A Fiscally Responsible Budget

Total funds growth kept to 1.9%
(excluding appropriation to Rainy Day Fund) J U S T

1 . 9 %
G R O W T H

FY13 budget includes ~$800 M in total fund reductions Total reductions now total $7.5 B

$ 5 6 M
LESS GF SPENDING STRUCTURAL OUTLOOK

General Fund reduced by $56 M vs FY12

(excluding appropriation to Rainy Day Fund)

Includes $610 M in General Fund spending reductions

Structural outlook for FY13 improved by +$650 M Spending Affordability Guidelines Met for 6th yr in a Row
Proposed spending cuts and revenue actions exceed committee goal, reduce structural deficit by ~59%

+$650M M E T
&a
SPENDING GUIDELINES 6YRS IN A ROW

Rainy Day maintained at 5% of revenues ($673 M) fund balance of $164 M is retained ($837 M total)

$673 M
RAINY DAY F U N D
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FY2013 Budget Highlights: Tough Choices & a Balanced Approach

Job Creation is our #1 Priority: $4 billion of operating/capital spending focused on jobs and job creation Weve Made Tough Choices: 55%or $610 millionof budget balancing actions are General Fund cuts Weve Taken a Balanced Approach Including New Revenues: $311 million in new revenues by closing loopholes, modest caps on deductions and phasing out exemptions for higher earners
$4 B FOR

JOB
CREATION

$610M
IN GENERAL FUND CUTS

$311M
I N N E W REVENUE

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Tough Choices
$610 Million of Net General Fund Reductions 55% of Budget-Balancing Actions
Share Teachers Retirement Costs w/ Local Governments ($239 million) Constrain Medicaid Hospital Costs/Divert Patients to Community ($85 million) Cap Rate Increases for Most Medicaid Providers at 1% -1.5% ($63 million) Medicaid Smart Payer Initiatives & Federal Revenue Maximization ($63 million) Earn Federal Performance Incentives Maximize Federal Fund Recoveries for Services Provided Combat Efforts of Other Payers to Shift Costs to Medicaid Align Provider Payment Rates with Regional Standards Enhance Utilization Review Fund Debt Service Costs with Bond Premiums ($55 million) Level Fund Most Local Aid Programs ($29 million) Employee Health Insurance Costs ($21 million) Facility Closures & In-sourcing ($6 million) 149 Position Abolitions ($3 million) 68 in bargaining units, 9 of which are filled
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A Balanced Approach
$104 M re-direction of existing state revenue streams to general fund $311 M of new general fund revenue
$182 million by capping income tax deductions and phasing-out exemptions for high earners. $21 million from defending Maryland retailers by requiring online sellers to collect sales tax. $19 million by aligning tax on other tobacco products with the cigarette tax. $20 million by closing tax loopholes for MD mined coal ($6 million), telecom companies ($9 million), coins/bullion ($3 million), and other miscellaneous items ($2 million) $9 million level funding of commissions for lottery agents $59 million settlements with pharmaceutical/insurance companies $2 million from online lottery sales

$78 M of revenue due to anticipated extension of federal payroll tax cut

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Deduction & Exemption Adjustments for Higher Earners

No change in income tax rates 8 out of 10 Marylanders: No change 2 out of 10 Marylanders: Cap Income Tax Deductions for Higher Earners
Capped at 90% for incomes above $100k Capped at 80% for incomes above $200k

Phase-out Exemptions for Higher Earners

Exemptions reduced from $2,400 to $1,200 per person for singles $100-$125k and couples $150-175k Exemptions eliminated for singles above $125k and couples above $175k
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Teachers Retirement Cost Drivers

Teachers retirement costs driven by :
Benefit Design/Employee Cost Sharing; Investment performance; and Growth in teacher salaries

Reforms approved by the General Assembly during the 2011 session will restore the health of the employee and teachers retirement systems and generate net savings for the State
Constrained long-term pension costs by modifying benefits for new employees, increasing the employee contribution, and linking retiree COLAs for new employees to investment performance. Systems expected to achieve 80% funding a nationally recognized benchmark - by 2021 100% funding achieved by 2030 Net savings to State over ten-years of more than $1 billion

Recent Investment performance exceeds goal

Investment returns have exceeded target of 7.75% in each of last two years

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State Teachers Retirement Costs More Than Doubled Over Five Years

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Responsibly Sharing Teacher Pension Costs

Administration proposal would require local jurisdictions to pay 50% of combined costs of social security and teachers retirement contributions. Locals currently pay one-third of combined costs.
The State is currently responsible for 100% of local teacher retirement expenses. Locals currently pay 0% of pension contributions and 100% of the cost of social security contributions.

Proposal shares $239 million of costs with local governments

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Responsibly Sharing Teacher Pension Costs

$244.5 Million of fiscal relief for local governments $111 million from deduction and exemption adjustments for the highest earners $40 million from closing a loophole that allows entities to create business relationships solely for the purpose of avoiding paying taxes on real estate transactions $37 million ($367 million over 10 years) by repealing the required local re-payment to accounting reserve $19.5 million from adjustments to disparity grant aid $37 million from sunset of requirement that locals reimburse State for teachers retirement costs associated with federally funded positions (ongoing)
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Closing the Budget Gap

New Fund Balance = $164 Million

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Driving Down Violent Crime

Total public safety budget of more than $2.2 B
$45.4 M in police aid to local governments and municipalities $20.8 M in local law enforcement grants to target domestic violence, substance abuse, and gun trafficking $52 M for the continued development of Marylands Public Safety Communications System $6.5 M to improve law enforcement communication through continued implementation of the Computer Aided Dispatch & Records Management System (CAD RMS). Brings total investment to $29.5 M $4.4 M to bolster staffing (93 positions) and patient safety at Clifton T. Perkins Hospital $51 million for Maryland Emergency Management Agency (MEMA) Funds for two new trooper classes to maintain force strength
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Expanding Skills & Education

Record direct aid for Marylands #1 ranked public schools ($5 billion)
Brings six-year total of direct aid funding for K-12 schools to $28.7 billion. Fourth consecutive year of full funding for GCEI

$373 million for public school construction bringing 6 year total to $2 billion
6 consecutive years of meeting or exceeding Kopp Commission recommendations Largest ever commitment to school construction over a six-year period
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Expanding Skills & Education

$5.4 Billion for Higher Education $9.5 million to keep tuition growth at 3% for University System of Maryland and Morgan State University, only 3rd increase in seven years $217 million for direct aid to local community colleges $41 million for Baltimore City Community College $2.5 million incentive funding for community colleges that hold tuition increase at or below 3%

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Supporting a Healthier Maryland

$7 B for health care coverage for more than 1 million $27 M to support individuals with developmental disabilities, which leverages $20 million of matching federal dollars, for an unprecedented investment in support $27 M to expand community based-services as alternative to institutional care Serve 480 additional elderly and disabled patients with long-term health care needs in the community Improve case management & raise provider payment rates $5 M to fight substance abuse, support long-term recovery and housing for substance abuse patients $4 M to reduce health disparities in targeted communities through a new pilot program
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Building a Sustainable Future

$63.5 M Bay Restoration Fund revenue enhancement, creating 780 jobs $25 M for Bay 2010 Trust Fund, brings total five year investment to $88 million. $28 M to improve the health of the Chesapeake Bay by investing capital to upgrade storm water infrastructure $23 M for State Park improvements, upgrades and green projects $5 M to implement the Watershed Implementation Plan Maintain full funding for Program Open Space $18 M for cover crops which enrolled a record 567,000 acres in FY12.
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Creating Jobs & Fostering Innovation

$4 B Focused on Job Creation
$3.6 B capital budget will leverage $1.4 B in local government & private sector construction investment that will support a total of 52,000 jobs $23 M for InvestMaryland to spur new job creation $15 M for the Maryland Economic Development Assistance Fund $1.1 M conditional loan to Bechtel Corporation which will retain a minimum of 1,250 high-wage jobs in MD through 2018 $2 M to promote the 200th Anniversary of the War of 1812 and the birth of the star spangled banner $7.5 M for Film Production Tax Credit $7 M for Sustainable Communities Tax Credit to promote urban redevelopment & create jobs $8 M in tax credits to spur investment in biotechnology $10.4 M for Stem Cell Research, equals $101.6 M invested since 2007 33

FY13 Capital Budget = $3.6 billion

State construction investment will support over 37,000 jobs in FY13
$1.6 B for State facilities & capital programs supporting 17,820 jobs $2 B for transportation projects - supporting 19,311 Jobs

State construction investment leverages nearly $1.4 billion in local government and private sector construction spending that supports ~15,000 jobs

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~52,000 Jobs Supported by State Capital Investment and Leveraged Dollars

FY 2013 Capital Budget Jobs Impact
Jobs Supported by State Investments Jobs Supported by Leveraged Funds Jobs Supported by State Funds & Leveraged Funds

Public School Construction Program Rental Housing Works Initiative Bay Restoration Fund Bay Restoration Fund Revenue Enhancement Transportation Capital Budget CIP and Other Capital Spending Total Jobs

4,603 102 952 781 19,311 11,382 37,131

7,046 1,053

11,649 1,155 952 781 19,311

6,548 14,647

17,930 51,778

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FY 13 Capital Budget = $3.6 billion

$1.6 Billion for State Facilities and Capital Programs
Education - $676.2 Million $373 Million for Public School Construction $245 Million for Public 4-Year Campuses $44.4 Million for 20 Community College projects Health & Environment - $623.7 Million
$203.5 Million for Bay Restoration projects $255 Million for improvements to local water systems and wastewater treatment plants $115.3 Million for Land Preservation Programs $35.4 Million for Health-Related Projects, including funding for hospitals and community health facilities

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FY 13 Capital Budget = $3.6 billion

Public Safety - $102.3 million $38.7 Million for State Police Helicopter replacement $25.3 Million for a Statewide Wireless Communications System $21.9 Million for Dundalk Armory Expansion $9.1 Million for Correctional Facilities Other Projects - $180.8 Million $15 Million for Rental Housing Works Initiative $32.5 Million for affordable rental housing projects $23.3 Million for Community Revitalization projects Economic Development - $73.5 million

$56.7 Million for One Maryland Broadband Network $12.6 Million for Tourist and Cultural Attractions $4.2 Million for Neighborhood Business Works Program

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O'Malley-Brown Funding for Public School Construction Highest Ever

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