A budget is a policy document that reflects priorities and allocates scarce resources. The challenge for 2021 is twofold: 1) The State starts with a “structural deficit,” and 2) the Covid-19 pandemic has placed unique pressures on the budget, both in terms of revenues and expenses. The Constitution of Maryland, unlike the Federal government, requires a balanced budget:
Maryland League members have, since the 1950s, understood the importance of the relationship between various revenue sources available to state government and the services provided by those revenues. Promoting a sound economy and maintaining an equitable and flexible system of taxation are among the League’s basic principles. The hallmarks of the LWVMD’s position are: 1) a progressive tax system, and 2) an equitable and efficient fiscal structure.
The General Assembly’s Spending Affordability Committee is charged with making recommendations for state spending, new debt authorization and state personnel levels. In December 2020, the Committee examined the most current projections. Their Report reveals that the State was in a stronger position than imagined when the pandemic first hit, which is not to say that there are not significant budget strains. Their recommendation would leave about $1 billion in the reserve fund at the end of the 2022 fiscal year, an amount equal to 5 percent of state general fund revenues. Traditionally, 5 percent of revenue has been reserved in the Rainy-Day Fund, but recently the state has been holding 6 percent.
Relevant Events in 2020
Two Constitutional ballot questions that passed in 2020, and several Gubernatorial vetoes will impact both 2021 and out years.
Question 1 authorized the Maryland General Assembly to increase, decrease, or add items to the state budget if such measures do not exceed the total proposed budget submitted by the governor. This will not take effect until FY 2024. At that time, it will reshape the process and end the Governor’s status of wielding the strongest control of the purse of any colleague in the country. The LWVMD supported this amendment.
Question 2 authorized sports and events wagering with the revenue intended to fund public education. In 2021 how this is implemented will be a legislative consideration.
Gubernatorial Vetoes to Follow
The Governor proclaimed he would veto legislation that mandates an increase in spending or taxes, especially considering the pandemic. One critical bill he vetoed was designed to continue implementing the Kirwan Commission educational reforms, the "Blueprint for Maryland's Future" LWVMD has been a strong supporter of the Blueprint.
The legislature also passed several new taxes to pay for the Blueprint plan. These taxes included a tax on digital downloads such as Netflix and video games; a corporate tax change intended to bring in tens of millions each year; a new tax on vaping products and a doubled tax on cigarettes. They also passed a first-in-the-nation proposal to tax the targeted digital advertising on giant online platforms such as Facebook and Google. All these tax bills were vetoed.
At some point during the 2021 session the General Assembly will vote on overriding the vetoes. An override required two-thirds majority of both houses. The potential overrides will be a major event during the session.
Legislation to Follow in 2021
As indicated, the potential override of The Blueprint veto will be a major issue in which the LWVMD will be involved through its membership in the Maryland Education Coalition and the Coalition for the Blueprint for Maryland’s Future.
The future of the Blueprint will largely depend upon revenues. The LWVMD collaborates with the Maryland Fair Funding Coalition. We share many but not all views in common regarding a progressive and efficient tax system. As critics say:
Do not tax you. Do not tax me. Tax the guy behind the tree.
One man’s “loophole” is another man’s legitimate deduction.
The areas up for consideration for major tax legislation will fall in the following areas:
- Closing Corporate Loopholes – Combined Reporting and “Pass-through” businesses
- Ending Ineffective Business Subsidies – Enterprise Zone tax credits
- Fair Share – estate tax on multi-millionaires, capital gains treatment, and “carried interest”
- Digital Tax
Whether it is a household or a state budget, the balancing of revenues and expenses – especially during a pandemic – is a challenge. Already, much of our overall service level has been hollowed out. There will be a demand for specific services, education through the Blueprint being a major one. Where it ends up and how the services might be paid for will be major considerations during the session.