Wednesday, December 17, 2008
State Budget Gap Now $1.9B for FY 2010
State revenue estimates followed the downward spiraling economy, causing the State Board of Revenue Estimates yesterday to write down state general fund revenues by another $415 million for the current fiscal year (FY) and $963 million for FY 2010. This means that state general fund revenues would be almost flat for FY 2008, 2009 and 2010. If not for the tax rate increases enacted last fall, FY 2009 state revenues would have declined by 5.4 percent. See the Board’s report here (pdf).
Governor O’Malley responded to the latest FY 2009 revenue shortfall by announcing furloughs for state employees and indicating that he will bring to the Board of Public Works in January another $400 million in FY 2009 state budget cuts. Last night legislative leaders adopted a Spending Affordability target that would allow only 0.7 percent growth in the FY 2010 state general fund budget as a means of closing the projected $1.9 billion gap between estimated revenues and “normal” budget growth. See the DLS charts here (pdf).
What does this mean for business? The Governor will have to present a FY 2010 budget on January 21st that allows no spending growth for most state functions. Additionally, since two-thirds of state spending is mandated by statutory funding formulas with built-in growth, he will have to heavily rely on a Budget Reconciliation Act to temporarily freeze or reduce state aid to local governments and entitlements to individuals. Businesses will be at risk for reduced tax credit incentives and attempted “loophole” closers. Contact me for further information at .(JavaScript must be enabled to view this email address).
