POLITICS

Maryland Governor's Plan To Shift Funds From Schools To Pension Turns Out To Be Illegal

05/18/2015 03:39 pm ET | Updated May 20, 2015

Republican Gov. Larry Hogan’s recently announced plan to funnel $68 million meant for Maryland public schools into the state pension fund cannot be carried out without help from key Democratic legislators, a senior state official told The Huffington Post.

This contradicts Hogan’s claim Thursday that by not releasing some of the funds allocated by the state legislature for education, the money saved could be used to shore up state pensions.

The $68 million amounts to just half the money Maryland's schools should be getting according to the state’s Geographic Cost of Education Index, a formula intended to compensate parts of the state where funding education is more expensive. Baltimore's public schools would have received $11.6 million of the GCEI funding.

David Juppe, senior operating budget manager in the Maryland Department of Legislative Services, said that Hogan may not, on his own, transfer funds set aside for the GCEI to the state pension fund. The move would require a new appropriation from both the state Senate and the House of Delegates budget committees, and the joint legislative policy committee, all of which are controlled by Democrats.

“The idea that he can just take this GCEI money and put it in the pension is simply not true,” Juppe said.

The new appropriation would be needed to undo funding restrictions that were put in place to pressure Hogan into fully funding the GCEI. The General Assembly recently passed a law stating that if Hogan does not fully fund the GCEI according to the formula, the unused funds must go back into a separate designated account and can be used only for restoring GCEI at a later time. Hogan had wanted to use funds in the account to pay back the temporary borrowing of previous governors from the local income tax fund and other funds.

Hogan’s options are limited because of the unique distribution of power between Maryland’s General Assembly and its governor. The General Assembly, as Maryland's bicameral state legislature is known, is unable to increase spending or move funds from one program to another. In theory, this makes the General Assembly weak relative to the governor. In practice, it has prompted state legislators to mandate top priority spending or find other ways to box in the governor. In the case of the GCEI, which is one of the few tranches of education funding that is discretionary, the legislature pursued the latter option.

To make matters worse for Hogan, the General Assembly passed another law making the GCEI spending mandatory beginning FY 2017 if the governor did not fully fund it in FY 2016. Hogan has announced that he will not veto the law, since he believes the votes are there to override his veto.

Matt Stegman, chief of staff of the Maryland House Appropriations Committee, said that the committee chairperson, Delegate Maggie McIntosh, was not willing to cooperate with Hogan on an appropriation that would transfer GCEI funds to the state pension fund. The House Appropriations Committee is one of the two budget committees that would need to sign off on transferring funds to the state pension.

“Chair McIntosh has no interest in a new appropriation,” Stegman said.

Stegman noted that the appropriation would require a special legislative session for which there is especially little appetite among Maryland lawmakers.

A high-level Democratic aide in the state Senate echoed Stegman's remarks. The aide, who spoke on condition of anonymity, said he had no knowledge of any communication from Hogan asking to convene a special session.

McIntosh, who represents the city of Baltimore in the House of Delegates, has been a leading advocate for full funding of the GCEI. Just days before Hogan’s announcement Thursday, she joined city officials and education advocates in a rally for the funding at Baltimore’s Barclay Elementary School.

A Sunday editorial in The Baltimore Sun criticizing Hogan’s decision not to fully fund the GCEI noted that, contrary to the governor’s claims, it would not even benefit the state’s pension fund.

“And here's the craziest part of it all: Governor Hogan can't just shift the $68 million from GCEI to the pension system,” the editorial said. “The General Assembly passed the budget, and it specified that the money could be spent in the coming fiscal year on education, not on pensions. It is law.”

As of publication on Monday, Hogan’s office had not responded to HuffPost's repeated requests for comment on how it planned to proceed.

Hogan’s decision last week not to fully fund the GCEI came amid increased national attention on the resources, or lack thereof, available to Baltimore’s poor residents after the civil unrest there in late April. Baltimore Mayor Stephanie Rawlings-Blake (D) cited the unrest in her condemnation of Hogan's decision.

“Given how the needs of our children have been highlighted by the events of the past few weeks, I hoped that the governor would have agreed with the General Assembly that these dollars are critical for expanded educational opportunities," she said.

UPDATE: 5/19, 5:00 p.m. -- Douglass Mayer, deputy communications director for Hogan, explained that the governor's $68 million savings on school spending would go toward the state pension fund through a “sweeper” provision in the FY 2016 budget. The “sweeper” provision specifies how a budget surplus from a forthcoming fiscal year will be used if it materializes. Thus, it would not require a special session for a new appropriation.

It is still unclear, though, how Hogan would transfer all $68 million in unused GCEI funds to the state pension. In Maryland’s FY 2016 budget, the General Assembly and governor agreed that the first $50 million of the surplus above $10 million -- the amount that must always be returned to the general fund balance -- would go toward the state’s pension fund in FY 2018. Any surplus money above $60 million is required to go to the so-called rainy day fund.

That means no matter the amount of the surplus, the pension contribution from the "sweeper" provision would fall short of the $68 million figure Hogan promised. Currently, the state government estimates that the FY 2016 budget surplus will be $28 million, which would result in a roughly $18 million “sweeper” contribution to the pension fund.

Mayer said that Hogan expects there will be a $110 million budget surplus in FY 2016. Hogan’s estimate assumes that along with the $28 million budget surplus projected by the state, the governor can count the $68 million in savings from not fully funding the GCEI, and $15 million saved from not funding the full request from the Prince George’s County Hospital -- the latter of which Hogan also rejected against the General Assembly’s wishes.

From the governor’s estimated surplus, the pension fund would receive the maximum $50 million through the “sweeper” provision. Hogan plans to then contribute another $25 million through an appropriation in the following fiscal year, bringing the total additional pension contribution to $75 million. It would be on top of a $75 million contribution that is already in the FY 2016 budget, for a total $150 million contribution.

State Sen. Edward Kasemeyer (D), chair of the Budget and Taxation Committee, insisted that the restrictions the General Assembly placed on the unfunded GCEI and Prince George’s County Hospital funding preclude them from being counted toward a surplus that would flow into the state pension fund. The General Assembly recently passed a law stating that if Hogan does not fully fund the GCEI according to the formula, the unused funds must go back into a separate designated account and can be used only for restoring GCEI at a later time. The law stipulated the same for funding set aside for the Prince George’s County Hospital.

CORRECTION: A previous version of this story stated incorrectly that Hogan and the General Assembly agreed that half of the surplus amount above $10 million would go to the pension fund. They agreed that the first $50 million would go toward the fund.

The story also incorrectly stated that the first $10 million of the surplus is always set aside for the rainy day fund. That money goes to the general fund balance.

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