Are O'Malley's Fund Swaps Even Legal?

Maryland stands on a budgetary “edge of a cliff.”  Over the course of four budgets, Governor Martin O’Malley has relied upon one-time transfers, fund swaps and "found money" to balance Maryland’s annual budget.

O'Malley himself acknowledges that his budget policy has relied upon short-term fixes with no long-term strategy: "Two weeks after introducing a state spending plan held together with fund transfers and other one-time accounting maneuvers, Gov. Martin O’Malley said he has 'pretty much exhausted' the short-term fixes that have been hallmarks of his recession-era budgeting. 'We’re running out of things to do to keep the engine from seizing up,' O’Malley, a Democrat, said."  The Daily Record, January 31, 2010.

Entering the 2010 legislative session, there were few remaining reserve funds left to tap. They have all been depleted. O'Malley has exhausted all available reserves except for the Rainy Day Fund. Tapping the Rainy Day could jeopardize the coveted Triple A bond rating which would cause great embarrassment to the administration.

So O’Malley turned to the Injured Workers Insurance Fund to tap a reserve of $20 million. Problem is – the IWIF reserve is not state money. It is not taxpayer dollars. Instead it is overpayments of insurance premiums from small businesses throughout the state.

Then is O'Malley's fund swap even legal? A 1968 opinion of the Attorney General’s Office states that reserve funds of the State Accident Fund (IWIF’s predecessor) are not state funds accessible for general purposes. Established as a nonprofit insurance company, IWIF is a quasi-public agency and state use of insurance overpayments as a fund swap would be unconstitutional.

To cover their tracks, the O’Malley Administration has now introduced bills (Senate Bill 507 and House Bill 1008) that would give the authority to transfer the $20 million just as long as it’s never done again. Go figure!