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Looking Ahead to the New Fiscal Year

Maryland’s new fiscal year began on July 1st. As the new budget cycle begins, and as agencies begin to think about next year’s budget requests, there are many things on the horizon to think about that could potentially impact the State’s budget, and how agencies spend their money.

Procurement Reform

After many years of discussions, workgroups, and tabled legislation, the Maryland General Assembly passed a significant procurement reform bill during the 2017 Legislative Session. Though most of the legislation doesn’t take effect until 2019, it’s important to know what’s coming. The flagship provision of the bill is the creation of a Chief Procurement Officer (CPO) within the Department of General Services, which will be responsible for all state procurement. The CPO will direct standardization of procurement procedures, training for procurement officers, enhancing efficiencies, as well as further reform efforts. Maryland’s current procurement system is a patchwork of different procedures, registrations, and applications across state agencies. This reform aims to minimize that and create an environment that is more welcoming and easier to navigate for businesses wishing to do business with the State of Maryland.

Paid Leave Executive Order

Following a contentious legislative battle, Governor Hogan vetoed legislation passed during the 2017 Legislative Session that would have required most employers to provide at least 5 days of earned paid sick leave per year. Governor Hogan had introduced his own paid sick leave legislation, but promised to veto any bill sent to his desk that did not provide adequate exemptions for small businesses. Following the veto, the Governor announced a series of executive orders dealing with paid leave from a state government and procurement perspective. Most notable of these orders, Governor Hogan has instructed agencies to “review procurement procedures, guidelines, and regulations to determine whether they can be modified or expanded to grant a procurement preference to bidders that provide paid leave to employees.” The deadline for the completion of this review is December 1, 2017. It is not yet known what these potential preferences may look like, but stay tuned with Alexander & Cleaver as this situation develops.

Revenue Estimates

The Maryland Board of Revenue Estimates is responsible for estimating state revenues. These estimates are revised and reported three times per year: March, September, and December. These estimates are critical given Maryland’s constitutional requirement for a balanced budget. In recent years, downward revisions of these estimates, as well as failure for revenues to meet these estimates, have resulted in the necessity to reduce spending mid-fiscal year. For example, in November of 2016, the Board of Public Works voted to cut $82 million in spending in the middle of the fiscal year. The next revenue estimates report is due for release in September, and Alexander & Cleaver will continue to monitor for any potential impacts on the current budget, as well as the formulation of the FY2019 budget.

Federal Budget Actions

Because of our proximity to DC, Maryland’s fiscal environment is highly affected by the federal government. Fluctuations in defense spending can create volatile effects on state revenues through personal and corporate income taxes. Additionally, the potential repeal of the Affordable Care Act has left a cloud of potential federal revenue loss hanging over the State’s head. These federal funds have been estimated around $2 billion. Although the repeal is currently on life support, should things change, state legislative and executive branch leaders will have a significant challenge in balancing the budget moving forward.

Keeping Watch

Though the budget receives most of its attention during the legislative session, as the budget committees review requests in a series of dozens of hearings and briefings, the budget process is ongoing throughout the entire year. Alexander & Cleaver continues to monitor budget updates, revenue changes, state audits, procurement changes, and anything else related to state spending. Please call Robert Garagiola or Tyler Bennett at 410-974-9000, or via e-mail at rgaragiola@alexander-cleaver.com and tbennett@alexander-cleaver.com respectively, to discuss ways that Alexander & Cleaver can assist you or your organization in navigating state procurement or budget requests.

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