Can Maryland's legislature let federal block grant money bypass the state treasury and the normal budget process?

Plain-English summary

The chairman of the Senate Budget and Taxation Committee asked the Attorney General how much control the General Assembly had over federal "block grants," the broadly-flexible federal funding introduced by the Omnibus Budget Reconciliation Act of 1981 that let states decide how to spend the money within general federal guidelines. The opinion concluded that while federal law governs whether Maryland remains eligible for these grants, State law governs how the funds are held and spent once received. Because block grants give the State broad discretion over their use for State purposes, unlike specialized funds dedicated to a single outside purpose such as bond repayment or insurance claims, they count as "moneys of the State" under Article VI, §3 of the Maryland Constitution. That meant the funds had to be deposited in the State Treasury and could be spent only through the Executive Budget Amendment's appropriation process: the Governor includes them in the Budget Bill, and the General Assembly may only strike, reduce, or qualify the Governor's proposed appropriation, not redirect the money into a separate account outside the Treasury. The opinion expressly overruled a 1978 opinion that had read the Constitution's "until otherwise prescribed by law" language as letting the legislature keep certain state funds out of the Treasury altogether. The opinion did note one avenue for legislative influence: the General Assembly could pass a statute, timed under the constitutional deadlines for such directives, requiring the Governor to include a particular funding level for a specific program in a future budget.

Currency note

This opinion was issued in 1983. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could Maryland's General Assembly set up a separate account outside the State Treasury to control how federal block grant money got spent?
No, according to this opinion. Federal block grants were "moneys of the State" under Article VI, §3 of the Maryland Constitution, so they had to be deposited in the Treasury and could be spent only through the regular constitutional appropriation process, not through a legislatively created account outside that process.

Did the Governor or the legislature have more control over how block grant money was spent?
The Governor had the primary role: under the Executive Budget Amendment, only the Governor could propose how block grant funds would be appropriated in the Budget Bill. The General Assembly's power over that Bill was limited to striking, reducing, or qualifying the Governor's proposed appropriations, though it could separately pass a timely statute requiring a particular funding level for a program in a future budget.

Why did the opinion distinguish block grants from things like bond-repayment toll funds or the State's automobile insurance fund?
Those other funds were "completely appropriated to outside persons" for one narrow purpose (like paying bondholders or accident claims), so Maryland courts and prior opinions had found the State had no real discretion over them and they were not "moneys of the State." Block grants, by contrast, were meant to be used flexibly for State purposes, which the opinion found to be the key difference.

Did this opinion change any earlier legal position of the Attorney General's office?
Yes. It expressly overruled a 1978 opinion that had concluded the phrase "until otherwise prescribed by law" in Article VI, §3 let the General Assembly direct that certain state funds, like particular testamentary gifts, be held outside the Treasury in a separate account.

Background and statutory framework

The Omnibus Budget Reconciliation Act of 1981 consolidated various federal aid programs into nine block grants (covering areas like community development, education, preventive health, and social services), each with substantive spending conditions and, in some cases, procedural requirements such as the education block grant's mandate that the state educational agency distribute funds to local agencies. The question was how much authority Maryland's General Assembly had to direct the use of these funds once Maryland accepted them.

The opinion grounded its answer in Article VI, §3 of the Maryland Constitution, which requires the Treasurer to "receive the moneys of the State, and, until otherwise prescribed by law, deposit them ... to the credit of the State" in an approved bank, and in Article III, §32, which bars withdrawal of Treasury funds "except in accordance with an appropriation by Law." The opinion first found block grants were "moneys of the State" because, unlike specialized funds "completely appropriated to outside persons" (the toll-revenue bond fund in Wyatt v. State Roads Comm'n) or insurance-style funds paying claims (the Subsequent Injury Fund and the State Accident Fund), block grants were meant to be used flexibly for State purposes. The opinion then traced the drafting history of Article VI, §3 back to the 1867 Constitutional Convention, concluding that the phrase "until otherwise prescribed by law" was never intended to let the legislature keep State funds out of the Treasury altogether, only to govern how appropriated funds would eventually be spent and where Treasury funds could be deposited. On that basis, the opinion expressly overruled a 1978 opinion (63 Opinions of the Attorney General 492) that had read the same clause more broadly. Reading Article VI, §3 together with the Executive Budget Amendment (Article III, §52), the opinion concluded block grant funds had to flow through the Governor's Budget Bill, with the General Assembly's amendment power limited to striking, reducing, or qualifying proposed appropriations under Article III, §52(6), while a separate constitutional mechanism, Article III, §52(11) and (12), let the General Assembly pass timely legislation requiring a specific funding level for a program in a future budget. The opinion cautioned that exercising either power in a way inconsistent with federal block-grant conditions, such as the education grant's distribution requirements, could jeopardize the State's continued eligibility for the funds, and could also implicate Article III, §46, which requires the General Assembly to administer federal grants "according to the conditions of the said grant."

Citations

Statutes and constitutional provisions:

• Article VI, §3 of the Maryland Constitution (Treasurer's duty to receive and deposit "moneys of the State")
• Article III, §32 (funds withdrawn from Treasury only by appropriation)
• Article III, §52 (Executive Budget Amendment), including §52(2), (3), and (8) (Budget Bill and supplementary appropriation bills), §52(6) (General Assembly's power to strike or reduce appropriations), §52(11) and (12) (statutes requiring future funding levels), and §52(14) (Section prevails over inconsistent constitutional provisions)
• Article III, §46 (General Assembly's power to receive and administer federal grants according to their conditions)
• Omnibus Budget Reconciliation Act of 1981, Pub. L. No. 97-35, 95 Stat. 357, including §564(a)(2) (education block grant advisory committee) and §565(a) (education block grant distribution requirement)
• Article 95, S21 of the Maryland Code
• Chapter 125, Laws of Maryland 1982 (Fiscal Year 1983 budget act)

Cases:

• Wyatt v. State Roads Comm'n, 175 Md. 258, 269 (1938)
• Subsequent Injury Fund v. Pack, 250 Md. 306 (1967)
• Howard County Ass'n for Retarded Citizens v. Walls, 288 Md. 526, 530 (1980)
• Brown v. Brown, 287 Md. 273, 277-78 (1980)
• Bayne v. Secretary of State, 283 Md. 560, 574 (1978)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1983/Volume68_1983.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

BUDGETARY ADMINISTRATION

Block Grants, "Moneys of the State", Executive Budget Amendment, State Funds Must be Put in Treasury, Subject to Appropriation Process, General Assembly May Not Direct Their Placement Outside Treasury.

January 20, 1983

The Honorable Laurence Levitan
Chairman, Senate Committee on Budget and Taxation

You have requested our opinion on the power of the General Assembly to control the use of federal "block grants". We understand this term to refer to funds that are appropriated to the State pursuant to federal law for various, rather broadly-defined purposes stated in that law. As distinct from the more traditional federal aid programs, block grants are intended to afford the State considerable flexibility in determining the particular uses of these funds.

For the reasons given below, we have concluded as follows:

(1) While federal law governs the State's continued eligibility for these grants, State law nevertheless governs the manner in which these funds are to be held and appropriated by the State.

(2) Under the Maryland Constitution, these funds must be deposited in the State Treasury and may be spent only in accordance with the appropriation process prescribed in the Constitution. The Governor must provide for the appropriation of these funds in a Budget Bill to be submitted to the General Assembly. The General Assembly may only strike, reduce, or qualify these appropriations.

(3) While the General Assembly thus has but limited power to modify a Budget Bill, it may enact legislation requiring the Governor to include, in a future budget, a particular level of funding for a particular program. Such legislation could be used to control the way in which the Governor provides for the appropriation of block grants in future budgets.

I
The Block Grant Program

Various block grants to the states have been authorized in past federal budget enactments. The most recent comprehensive enactment of block grants is found in the Omnibus Budget Reconciliation Act of 1981, Pub. L. No. 97-35, 95 Stat. 357 ("1981 Federal Budget Act"). (This law contained nine block grants for: community development; education; community services; preventive health; alcohol, drug abuse, and mental health services; primary care; maternal and child health services; social services; and energy assistance. The final federal budget for fiscal year 1983 has not yet been adopted as of this writing.)

While such budget acts ordinarily contain various terms and limitations concerning the expenditure of block grant funds, we view these simply as conditions for the receipt of the funds, that is, if the State accepts these funds from the federal government, it must abide by any specified substantive restrictions in spending the money. Acceptance of block grants may also require compliance with federal procedural requirements. (For example, the educational block grant in the 1981 Federal Budget Act requires the establishment of an advisory committee on the allocation of a state's portion of the grant. §564(a)(2). Such procedural requirements do not, however, address the manner in which the funds are to be appropriated by the state.) Nevertheless, it is quite clear that State law governing the appropriations of these funds from the Treasury is not preempted by the federal law. (The educational block grant in the 1981 Federal Budget Act, unlike the other block grants, contains provisions that repose certain authority over the distribution of funds in a particular executive agency. For example, §565(a) of the 1981 Federal Budget Act requires that "the State educational agency shall distribute not less than 80 per centum [of the block grant funds] to local educational agencies within such State ... in accordance with criteria approved by the [U.S.] Secretary [of Education]". We discuss the relation between such requirements and the General Assembly's authority under State law at note 13 below.)

II
State Constitutional Requirements for Control of Block Grants

Article VI, §3 of the Maryland Constitution provides, in pertinent part, as follows: "The Treasurer shall receive the moneys of the State, and, until otherwise prescribed by law, deposit them, as soon as received, to the credit of the State, in such bank or banks as he may, from time to time, with the approval of the Governor, select". Article III, §32 of the Constitution provides, in turn, that, once funds are deposited in the State Treasury, they may only be withdrawn "in accordance with an appropriation by Law".

A. "Moneys of the State"

In our opinion, block grants received by the State for its use are "moneys of the State" within the meaning of Article VI, §3. They are plainly intended to aid the State in the carrying out of State functions. Within the limits specified in the grant, the State may use the funds as it wishes. Indeed, the very purpose of the block grant form of federal assistance is to afford the State broad discretion in deciding how the funds can best be applied.

This characteristic of block grants is in marked contrast to the types of funds that have been held not to be "moneys of the State". The State has no comparable discretion over the disposition of these other types of funds.

One example of the latter was a toll revenue fund wholly dedicated to bond repayment. In holding that the creation of such a fund outside the Treasury did not violate the procedures of Article VI, §3 of the Maryland Constitution, the Court of Appeals described the fund as follows: "The fund from tolls will be one coming into existence only for the special, peculiar, application to the bonds, and is completely appropriated to that purpose; and nothing more than a medium of collection and transmission is required. The State will have no right to the fund, and it would be a misapplication to put it into the ordinary channels for state revenues. The sections of the Constitution cited are not intended to deal with a fund so completely appropriated to outside persons." Wyatt v. State Roads Comm'n, 175 Md. 258, 269 (1938) (emphasis added).

Specialized funds, analogous to private insurance pools that receive premiums and pay claims, have also been held not to be "moneys of the State". Subsequent Injury Fund v. Pack, 250 Md. 306 (1967); 58 Opinions of the Attorney General 88 (1973) (Maryland Automobile Insurance Fund); 53 Opinions of the Attorney General 3 (1968) (State Accident Fund). This Office characterized the last named fund as follows: "The fund's character as a public fund may be indicated by a statute providing that industrial insurance premiums may be paid only into the state treasury for the accident and medical aid fund. But it is not public money in the sense of being money of the state to be used for, and on behalf of, the state for a state expenditure". 53 Opinions of the Attorney General at 6. (Emphasis added.)

By contrast, the block grants involved here are neither "completely appropriated to outside persons" nor dedicated to the payment of claims. Rather, they are broadly intended "to be used for, and on behalf of" the State. They are therefore "moneys of the State" and, as such, must be received by the Treasurer. (We do not suggest that the distinctions drawn here are necessarily the sole determinatives of the status of all types of funds received or maintained by State entities. See note 5 below.)

B. Deposit into the Treasury

A more difficult issue is whether the General Assembly may, consistently with Article VI, §3 of the Maryland Constitution, direct the Treasurer to do something with the block grant funds, which are "moneys of the State", other than to receive them into the State Treasury. In 63 Opinions of the Attorney General 492 (1978), the then Attorney General took the position that the phrase "until otherwise prescribed by law", as used in Article VI, §3, authorized the General Assembly to direct that "moneys of the State" not be deposited in the State Treasury but, instead, be held by an agency in a separate checking account apart from the Treasury.

We do not agree with this construction of the constitutional language. The better reading, in our view, is that this language was intended to reflect (i) the authority of the General Assembly (and later, on passage of the Executive Budget Amendment, the Governor) to prescribe, through the budgetary process, the appropriation of funds from the Treasury and (ii) the authority of the General Assembly to prescribe, through the legislative process, the deposit of Treasury funds in financial institutions other than banks. However, the General Assembly is not, by this language, given authority to avoid the constitutional requirement that "moneys of the State" be deposited in the Treasury. (Thus we specifically overrule 63 Opinions of the Attorney General 492 (1978) to the extent that the Opinion so construed Article VI, §3. The Opinion also suggested that the funds in question, certain testamentary gifts to the Maryland Historical Trust, were not "moneys of the State". We do not here address that aspect of the Opinion nor, therefore, do we necessarily speak to the status of existing "special funds" of various State entities. Cf. 34 Opinions of the Attorney General 105 (1949) (discussing then existing "special funds").)

Our construction of the introductory passage in Article VI, §3 necessarily derives from our review of its history and its relationship to other constitutional provisions. The language itself is quite ambiguous: given the awkward phrasing of that passage, the clause "until otherwise prescribed by law" could be said to modify virtually anything in the sentence.

As originally reported out of committee at the 1867 Constitutional Convention, Article VI, §3 would have begun with the following: "The Treasurer shall receive and keep the moneys of the State and disburse the same upon warrants drawn by the Comptroller". Proceedings of the State Convention of Maryland to Frame a New Constitution 87 (1867) ("1867 Proceedings"). The provision was then modified by a floor amendment to read: "The Treasurer shall receive the moneys of the State and deposit them as soon as received, to the credit of the State until otherwise prescribed by law, in such bank or banks as he may from time to time select, and which selection the Governor shall approve". 1867 Proceedings at 233.

At this stage of the evolution of Article VI, §3, the phrase "until otherwise prescribed by law" clearly did not diminish or condition the Treasurer's obligation to deposit all "moneys of the State" in the Treasury immediately. Rather, its placement in the sentence suggested that the framers' intention was simply to require that State funds be maintained in the Treasury, i.e., "to the credit of the State", until earmarked for some purpose through the appropriation process, i.e., "until otherwise prescribed by law".

The language of Article VI, §3 now in the Constitution resulted from another floor amendment. The Chairman of the Committee upon Revision and Compilation, to which the Treasury Article had been referred, offered a series of amendments that changed the wording in every section of the Article. 1867 Proceedings at 569-70. The amendment to Article VI, §3 that produced the current language thus appears to have been primarily a technical one. There is absolutely no indication that this last amendment was intended to authorize the maintenance of State funds outside the Treasury. (Perhaps the change in the location of the phrase "until otherwise prescribed by law" reflects an intention to modify the requirement that funds otherwise be deposited in "banks", so as to provide the General Assembly with the authority to broaden the types of permissible depositories. See 5 Opinions of the Attorney General 242, 243 (1920). See also Article 95, S21 of the Maryland Code.)

This history, while not conclusive, supports the view that, under Article VI, §3, the General Assembly lacks power to prescribe that "moneys of the State" not enter the Treasury. This construction also reconciles Article VI, §3 with other constitutional provisions.

If State funds could be channeled to accounts outside the Treasury, the Constitution's elaborate budget process might well be circumvented. Under Article III, §32, "[n]o money shall be drawn from the Treasury of the State, by any order or resolution, nor except in accordance with an appropriation by Law". And, in Article III, §52, the Executive Budget Amendment, the Constitution sets out detailed procedures applicable to all appropriations. (The applicability of the Executive Budget Amendment to block grants is discussed below in Part III of this Opinion.)

We are reluctant to ascribe to the drafters of both Article III, §32 and Article VI, §3 an intention to permit one cryptic phrase in the latter to be used to undo the careful regulation of expenditures contained in the former. In determining the meaning of constitutional provisions, the Constitution "must be examined as a whole and the interrelationship or connection among all of its provisions considered." Howard County Ass'n for Retarded Citizens v. Walls, 288 Md. 526, 530 (1980). (In Walls, the Court of Appeals was speaking of the relationship among statutory provisions. However, this and other rules of statutory construction generally apply to interpretation of the Constitution. See Brown v. Brown, 287 Md. 273, 277-78 (1980).)

Theoretically, at least, if the General Assembly were indeed constitutionally able to prescribe that "moneys of the State" not be deposited in the Treasury, it then could enact a virtually unlimited series of statutes establishing various independent funds into which substantially all State funds could be deposited, and from which they could be expended without any budgetary appropriation whatever. We do not believe that Article VI, §3 should be read to countenance such a possibility.

C. Summary

For these reasons, we conclude that block grants are "moneys of the State". As such, they must be placed in the Treasury and may be withdrawn only in compliance with Article III, §§32 and 52. (In reaching the conclusion that federal funds from the block grants must be deposited in the Treasury and are subject to appropriation in the Budget Bill, we have considered the authority conferred on the General Assembly by Article III, §46 of the Maryland Constitution. Section 46 provides as follows: "The General Assembly shall have power to receive from the United States, any grant, or donation of land, money, or securities for any purpose designated by the United States, and shall administer, or distribute the same according to the conditions of the said grant." This provision was first adopted as Article III, §45 of the Constitution of 1864. See Maryland Constitutional Convention Proceedings of 1864 at 318-20; 2 Debates of the Maryland Constitutional Convention of 1864 at 958-62. Despite the rather sweeping language of this provision, it is clear that, to the extent the federal grants are required to be deposited in the State Treasury, they are subject to the appropriation process of the Executive Budget Amendment. In this regard, Article III, §52(14) provides: "In the event of any inconsistency between any of the provisions of this Section and any of the other provisions of the Constitution, the provisions of this Section shall prevail." See also note 13 below.)

III
The Budget Process As Applied to Block Grants

Under the Executive Budget Amendment, there are only two kinds of appropriation bills: (1) the Budget Bill, which is prepared and submitted to the General Assembly by the Governor; and (2) supplementary appropriation bills, which are initiated by the General Assembly and must provide their own revenue. Article III, §52(2), (3), and (8). In the Budget Bill for Fiscal Year 1983, for example, the Governor provided for the appropriation of funds from the nine block grants contained in the 1981 Federal Budget Act. (See note 1 above. For example, the Fiscal Year 1983 budget for the Department of Human Resources shows an entry for "Federal Fund Appropriation" in each functional category. Chapter 125, Laws of Maryland 1982 at 1469-75.)

And, under the Executive Budget Amendment, the General Assembly may only strike or reduce the Governor's proposed appropriations. Article III, §52(6). This power, however, implicitly includes the power to condition or limit the way an appropriation is to be spent. Bayne v. Secretary of State, 283 Md. 560, 574 (1978).

While the power of the General Assembly with respect to the Budget Bill itself is thus limited, the Executive Budget Amendment also authorizes the General Assembly to enact a statute that requires the Governor to include a particular level of funding in subsequent budgets for particular programs. Article III, §52(11) and (12). (The Executive Budget Amendment carefully prescribes when this authority must be exercised if it is to be effective for a particular fiscal year or years. A law requiring a level of funding for a program must be "in effect during the fiscal year covered by the Budget and [must have been] enacted before July 1 of the fiscal year prior thereto". Article III, §52(11) and (12). Thus, for example, if the General Assembly wished to require a given level of funding for a program in Fiscal Year 1985 (beginning July 1, 1984), it must enact an appropriate statute before July 1, 1983.) By requiring that particular programs be funded at a particular level, the General Assembly could, in effect, control the way in which the Governor allocates the funds from block grants in the Budget Bill. (As to what constitutes such a statutory directive, see generally 65 Opinions of the Attorney General 108, 110 (1980). See also 65 Opinions of the Attorney General 45 (1980).)

However, in order to maintain eligibility for the federal grants, these respective powers of the Governor and the General Assembly must be exercised in a way that is consistent with the 1981 Federal Budget Act and any other applicable federal law. Thus, although the General Assembly has authority under State law to condition an appropriation in such a way as to negate a federal procedural requirement, the General Assembly could exercise such authority only at the risk of losing the block grant. (For example, the General Assembly would jeopardize the educational block grant if it imposed a requirement inconsistent with the authority and responsibility of "the State educational agency" to distribute the educational block grant funds. See note 3 above. Moreover, the failure of the General Assembly to abide by applicable federal limitations might also violate Article III, §46 of the Maryland Constitution, which provides that the General Assembly "shall administer [grants received from the United States] according to the conditions of the said grant[s]". See note 9 above.)

IV
Conclusion

In summary, it is our opinion that federal law only governs the continued eligibility of the State for block grant funds. Once those funds are received, they are "moneys of the State" that must be deposited in the State Treasury. Once deposited in the Treasury, the funds are then subject to the regular appropriation process established by State law, which requires the Governor to provide for their appropriation in the Budget Bill and permits the General Assembly to strike, reduce, or qualify these appropriations.

We do not believe that, as to any "moneys of the State", including block grants, the General Assembly may circumvent the constitutional appropriation process by establishing independent funds outside the Treasury. In this regard, we specifically overrule 63 Opinions of the Attorney General 492 (1978) to the extent that it concluded otherwise.

Stephen H. Sachs, Attorney General
Jack Schwartz, Assistant Counsel, Opinions and Advice
Richard E. Israel, Assistant Attorney General
Avery Aisenstark, Chief Counsel, Opinions and Advice