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Md. House Proposes Using Lottery Revenue To Keep ’09 Stem-Cell Funding at ’08 Levels

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Maryland’s stem-cell research program may not face the financial setback it had been expecting in the coming fiscal year after the state’s lower house last week proposed a budget that would at least triple what the upper house had proposed, and opened the door for using lottery receipts to keep funding at current levels.
 
The House of Delegates proposal includes $15 million for the stem-cell program in its version of the budget for FY 2009, compared with $5 million approved by the state Senate earlier this month.
 
However, the lower house also allowed the possibility of keeping the spending at this year’s level by including up to $8 million from the state lottery — but only if the lottery money is surplus funding above the agency’s budget, proposed at just over $507 million, Del. John Bohanan Jr. (D-St. Mary’s) told BioRegion News last week.
 
“Why did we stop there and not keep going? Because we have other priorities that we would use any further over-attainment for,” said Bohanan, who chairs the state delegates’ spending affordability committee and the education and economic development subcommittee, and sits on the House appropriations committee.
 
The state legislators will have to hash out their differences through the conference committee that will craft a single legislative version of the state budget to present to Gov. Martin O’Malley. At deadline the committee had begun meeting but had yet to decide anything.
 
“The Senate will move fairly quickly closer to our $15 million level, but they might now not agree to funding the full $15 million as a going-in position,” Bohanan predicted.
 
Speaking to BioRegion News earlier this month, state Sen. Richard Madaleno Jr. (D-Montgomery County), a budget committee member, said senators would not rule out agreeing to a slightly larger budget for stem-cell research funding as part of a conference committee budget package. Madaleno did not return a BRN message last week seeking additional comment.
 
The delegates proposed the budget as the state government tries to enact $264 million in spending cuts intended to erase Maryland’s projected $332.9 million budget shortfall — a $74.7 million gap in the current FY 2008 and a $258.2 million hole expected the following year, which begins July 1. [BioRegion News, March 10].
 
O’Malley has proposed a $31.5 billion budget for FY 2009 that would include $550 million in spending cuts — but would add $177 million to the state’s “rainy day” surplus fund to $739 million after several years of drawing down the fund.
 
O’Malley’s budget spared the stem cell program from cuts, but kept funding at this year’s $23 million. Lawmakers have sought to cut the program by citing the budget shortfall — as well as the fact the Maryland Technology Development Corporation or TEDCO, which oversees the program, technically has spent neither any of the $23 million budgeted this year, nor $7 million of the $15 million budgeted in 2006-07.
 
However, TEDCO has already set aside $5.4 million of that $7 million to projects this year because it will be used for multiple-year projects it agreed to fund last year. TEDCO — the final arbiter of stem-cell spending decisions recommended by the advisory Maryland Stem Cell Research Commission — argues it can use only $1.6 million not spoken for during FY ’07 on this year’s projects.
 

“The state's revenue performance in recent years has been weakening, and expected stronger growth in fiscal 2009 poses some risk. … “

An independent scientific review committee is now reviewing and ranking 122 applications for stem cell funding received by the state, totaling more than $62 million, with the commission to make funding recommendations, followed in May by a TEDCO decision on which projects to fund.
 
Last fiscal year, the commission recommended — and TEDCO’s board approved — 24 grants totaling $13.1 million, from a pool of 85 applications seeking a combined $81 million in funding. All but one grant recipient was an academic or institutional applicant; the other was one of the state’s estimated five startup companies devoted to stem-cell research.
 
Speaking with BRN earlier this month, commission chair Linda Powers said Maryland’s stem cell program had been complicated by the fact it is funded year to year; awards for subsequent years are front-loaded into the first year. Any cut to the program, she contended, would deflate researcher confidence in Maryland at a time when California, Massachusetts and other states have ramped up stem-cell funding.
 
To date the House of Delegates has proposed cutting O’Malley’s budget by an additional $264 million, compared with $224 million proposed by the Senate. Even if all the House cuts were approved, the budget would still contain a gap of $177 billion, the Maryland Budget and Tax Policy institute projected in a report published March 18 and available here.
 
Bohanan said delegates were optimistic that lottery revenues would grow. One reason for that optimism: Net sales of lottery games rose by $16.4 million, or 1.1 percent, to nearly $1.6 billion during the fiscal year that ended June 30, 2007, paced by a $10 million increase in instant-game sales and the launch of a new online raffle that drew $6.5 million in sales.
 
And in an otherwise gloomy report released March 6, the state Board of Revenue Estimates stuck to its projection that the state’s lottery revenues would increase in the current year by 5.1 percent, or $24 million, to $497.1 million, and by 2 percent, or $10 million, to about $507.3 million in fiscal 2009.
 
No Sure Bet
 
The board made that estimate before the idea of using lottery funds for the stem-cell program surfaced, though the prospect of using $8 million of that windfall for stem-cell research next year may not be such a sure bet if three years of financial statements from the Maryland State Lottery Agency are any indication.
 
During the 2007 fiscal year, the lottery agency earned $483.2 million in income from operations — down 3.3 percent from FY 2006, when it racked up just under $500 million, which was only 0.6 percent above $480.5 million in FY 2005.
 
Consequently, the agency’s FY 2007 payment to the state General Fund and Stadium Authority fell 1.4 percent, to $494.2 million from $500.1 million in FY 2006. This was a reversal for the agency, whose 2006 payment rose 5 percent from FY 2005 on the back of a $29 million boost by the successful launch of its first $20 instant ticket game.
 
However, when payments to the state and other non-operating expenses, such as interest, are subtracted from its operational income, the lottery ended the 2006 and 2007 fiscal years in the red. Its total net assets fell by nearly half in FY 2007 to $14.2 million, on top of a roughly 60-percent drop in FY 2006, when the agency had $27 million in total net assets.
 
Earlier this year, Maryland’s bond-rating agency, Moody’s Investors Service, questioned whether the state has overestimated the revenue it expects to generate from a proposed expansion of its lottery program — namely, electronic slots played on video lottery terminals — if state voters approve legalizing them in a referendum set for the Nov. 4 Election Day ballot.
 
“Beyond fiscal 2009, budget balance is dependent on video lottery revenues, particularly in fiscal years 2012 and 2013, when they are estimated at $453 million and $604 million, respectively — levels that may be overly optimistic,” Moody’s said in its report, dated Feb. 22.

Despite that concern, Moody’s kept Maryland at its highest-possible AAA bond rating, with a “stable” credit outlook. In the report, released five days before the state sold $400 million in general obligation bonds, the rating agency cited the state’s $1.4 billion package of tax increases enacted late last year, its maintenance of reserves equal to at least 5 percent of revenues, its base of high-income jobs, and what Moody’s termed the state’s historically strong financial management.

 
But Maryland is not out of the fiscal woods yet, Moody’s warned.
 
“The state's revenue performance in recent years has been weakening, and expected stronger growth in fiscal 2009 poses some risk in the face of continued housing market weakness and economic uncertainty,” Moody’s concluded. “The state faces significant budget pressure that will test the state's financial-management abilities, especially should a trend of revenue weakening continue.”