Budget Reductions Before the Board of Public Works

August 26, 2009

 

Hello.  This is Governor Martin O’Malley.  Over the last several weeks we have been doing the tough things that we need to do within your State Government in order to make sure that we move Maryland through this recession as quickly as possible, while protecting as many of our priorities as possible for the hard-working families of the State of Maryland. 

We’ve had to make a lot of decisions that are painful.  We’ve had to make a lot of cuts.  We’ve had to implement a number of lay-offs, and we’ve also had to implement some furloughs once again, asking hard-working State employees to be part of this solution. 

I wanted to walk you through some of the things that we’ve done, so that you understand why we’re doing what we’re doing. 

First of all, in July we announced that we would have to be able to reduce State spending by approximately $700 million by Labor Day.  Over $280 million in budget actions were taken by the Board of Public Works on July 22nd.  Another $454 million were taken on August 22nd. 

This round of cuts now brings the total reductions during the course of the O’Malley-Brown Administration to $4.3 billion in spending cuts and reductions or -- or, rather, and 3,200 eliminations of State positions.  

For the very first time that anyone can remember, State spending will actually be less this year than it was three years ago. 

We are facing a gap of approximately five percent that we need to cover.  Contrast that with some other states.  In California, their budget gap is as high as 49 percent; in New York, 36 percent; in Florida, it’s 23 percent. 

We still have one of the nation’s most highly skilled workforces.  We are one of only seven States that still maintains and defends a Triple A Bond rating because of our ability to maintain fiscal responsibility, even in tough times.  And our unemployment rate is actually 20 percent below the national average.  We’ve created more jobs than we’ve lost in two of the last three months. 

And finally, key sectors in Maryland’s economy -- like health care, information technology and professional services, as I alluded to -- are actually still creating jobs. 

The round one of cuts amounted to $282 million, round two is $454 million for a total of $736 million. 

The way this breaks down, 60 percent of these cuts have come out of State agencies and departments; 29 percent have come out of reductions to local aid; and 11 percent have come from the employee salary and benefits, namely furloughs and health care concessions. 

We will also be abolishing a total of 364 positions.  Sadly, 202 of those positions are currently filled and we’re going to do everything in our power that we possibly can to help those employees find other work, other jobs, whether in government or outside of government. 

We will also be abolishing 162 vacant positions.  They are vacant because those positions have been frozen and, indeed, virtually the entire State Government has been on a hiring freeze for many, many months. 

There will be $17 million in associated savings from these actions. 

We have two goals.  And, of course, when we look at local aid reductions -- which, again, were a part of this package -- one was to protect our investment in K-12 education.  Maryland has some of the best public schools in the United States of America.  Education Week Magazine would say that we have the best public schools in the United States of America. 

So one is to protect K-12 education.  The other is to protect the aid formulas, like the Disparity Grant, so that we do not disproportionately impact some of the poorer jurisdictions in the State as we seek to move all 24 of the jurisdictions in Maryland through this recession. 

The reductions, however, to local aid result in $210 million in cuts; $20 million from local health grants, $20.6 from police aid grants, $10.5 million from community colleges, and the largest amount -- $159.5 million -- from highway user revenues.

Let me talk a little bit about General Fund spending.   General Fund spending has declined since the beginning of this administration.  When -- in 2007's fiscal year the spending was approximately a little more than $3.6 billion overall, for all of our State Government operations. 

That level will now be a little less than $3.2 billion.  And as I indicated before, this is the first time in modern history that anyone can remember that happening.

One area of the budget that has received increased support is the investment that all of us believe is important -- the education of our children.  So that -- since from the beginning of the O’Malley-Brown administration that has actually gone up some $700 million in General Fund support. 

The rest of the budget has -- the rest of the budget and the rest of State Government has actually gone down by about a little over a billion dollars. 

The cumulative budget reductions during the O’Malley-Brown administration amount to $4.3 billion and  this chart tracks those reductions from January of >07 up until the present of August >09. 

Eighty-one percent of our General Fund -- that is to say 81 percent of your tax dollar supports education, health and public safety in some way, shape or form.  Thirty-nine percent goes to K-12 education, 10 percent goes to higher education.  So that’s approximately 50 cents out of every State tax dollar goes to education, either K-12 or to higher education.  And the K-12, of course, is distributed in 24 checks that go to the 24 counties -- or, 23 counties in Maryland and the City of Baltimore.  

Nine percent is public safety, namely corrections and State Police.  Twenty-two percent is health care in some way, shape or form.  And 19 percent is everything else in the rest of our Government.  That would be the environment, natural resources,  and many, many other State agencies, agriculture -- and I could go on. 

The main point being that 50 percent of our State tax dollar goes to education. 

Looking ahead, close to $740 million actions have now been taken this summer to address the contraction in the national economy, the global economy, which results in declining revenues at the very time that more and more families are turning to the State for help. 

We needed to do this, we have a Constitutional obligation to balance the budget.  We are going to balance the budget.  Fiscal responsibility is at the center of what we do.  Without fiscal responsibility we can’t move forward. 

But, nevertheless, we are projecting a budget shortfall, if trends continue in this manner, in 2011 in excess of $1 billion.  That, of course, is subject to changes in the national economy, which then affect revenue sources. 

While many of the actions taken today will carry forward and achieve savings in Fiscal Year 2011, we are still reviewing agency budgets, program services and staffing levels and we are going to continue to move forward as we prepare for the 2011 budget process. That is underway even as we speak. 

We are also going to continue to review citizen suggestions on reducing State spending and we’ll seek to integrate them into our budget solutions as appropriate. 

Thanks very much for your time.  Thanks very much for your interest in your State Government.  Please remember we are all in this together.  We are one Maryland and we’re all going to come through this together and the likelihood is because of the tough decisions, the choices we make and the investments we protect, we’re going to come through it much sooner than many other states in the union.  

Thanks a lot.