Donald Fry: Proposed budget frames state’s fiscal contrasts

By Donald C. Fry

The proposed budget for fiscal 2014 that Governor Martin O’Malley announced on Wednesday illustrates the contrast of fiscal challenges currently facing lawmakers in Annapolis.

The governor’s budget reflects easing fiscal pressures relating to the general operating budget contrasted by tightening fiscal pressures on capital budgeting — particularly for transportation, which is the largest single category of state capital expenditures.

The governor’s proposed $37.3 billion overall budget amounts to a 4 percent increase over current state spending. That increase is made possible largely by a projected $1.1 billion increase — 3 percent — in state revenue in FY 2014 plus $408 million in unspent revenue from the general fund and other sources that would be folded into the budget.

The budget proposal offers encouraging news for business advocates. The governor is proposing to increase by more than $27 million the amount of important business development tax credit incentives that would be available in the next budget year.

His largest boost would be for the film tax credit, where a $17.5 million increase would make a total of $25 million in tax credits available next year for film projects in Maryland.

Other proposed funding for tax credits administered by the Department of Business and Economic Development includes:

• $10 million for the biotechnology tax credit, a $2 million increase;
• $8 million for research and development tax credits, a $2 million increase;
• $3 million for a new cyber security investment tax credit program;

The governor is also proposing to expand the Sustainable Communities tax credit program, administered by the Department of Planning, to $10 million — a $3 million increase over FY 2013. This program has proved to be a highly-effective incentive for leveraging private investment in commercial rehabilitation projects in downtown areas throughout the state.

Over the years, the program has leveraged hundreds of millions of dollars in private investment for conversions of older buildings into commercial space that would not have occurred without the tax credit’s availability.

Governor O’Malley deserves praise for proposing to increase the tax credits for research and development, bioscience, sustainable communities, film production, and creating the new cyber security tax credit.

Business advocates consistently express the importance of leveraging state dollars for private-sector job creation and the correlation to competitiveness. The governor’s proposals are prime examples of such leveraging that works.

If more money should become available during the session through lawmakers’ cuts to other areas of the governor’s budget, a resolution of the federal government budget stalemate, or if new revenue estimates come in by the end of the session, we urge the governor to submit a supplemental budget that would further add to the tax credit amounts.

The budgeted increases in business tax credits are a good first step, but more funding similar to the increases in the film tax credit are needed to incentivize business development in our state’s technology sectors, a major source of job creation in our state.

Meanwhile, the state’s operating budget projections are starkly contrasted by the outlook for funding capital project needs. Longer-term spending programs for general state capital projects and for transportation infrastructure both project downward trajectories, with transportation funding showing the steepest slide.

The most compelling illustration of this contrast is a chart on page 28 of the budget highlights book that summarizes the state’s projected capital spending over the next five years.

The chart shows that in FY 2014, proposed capital spending on transportation infrastructure would amount to almost 60 percent of the state’s overall proposed capital spending. But in FY 2018 capital spending on transportation will be less than the funding for all other capital projects – and that general capital funding level will be less than in FY 2014, the budget highlight document forecasts.

Admittedly, capital budget projections tend to be extremely conservative in the out-years of a five-year plan.

Nevertheless, this is an upside-down ratio that requires serious attention.

A January 16 presentation to the Senate Budget and Taxation Committee by the Department of Legislative Services offers a comprehensive report on the transportation funding realities that lawmakers and, by extension, Maryland citizens face.

The report details why state funding for construction of new roads, transit, and other transportation projects will literally run dry in 2018. It also details a myriad of proposed alternative funding options, other than raising the gas tax, that have been raised but not acted upon in recent years.

Virtually everyone in Annapolis agrees that stagnant funding for transportation infrastructure, and the growing fiscal crisis that has resulted, must be addressed.

But that’s as far as any consensus about transportation funding in Annapolis goes these days. Debate tends to bog down around issues that include rural versus urban transportation needs, funding for transit versus roads, and whether guarantees can be in place to ensure transportation funding is used for transportation purposes.

For anyone interested in the actual facts about transportation funding, I highly recommend reading the Department of Legislative Services analysis. The analysis shows that it is beyond the time for us to kick the can down the road again.

Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a regular contributor to Center Maryland.

Recent Center Maryland columns by Donald C. Fry:

Transportation funding: will it be a genuine priority in Annapolis this year?

As deficit pressure eases, what will state lawmakers focus on?

Competitiveness should be at the top of lawmakers’ priority lists

Community spirit: it’s alive and well in Baltimore’s business sector

Two agencies offer roadmap to competitiveness

State funding for new roads approaching zero