Can a Maryland state agency use money from a dedicated special fund for purposes the budget bill adds, if the fund's own statute doesn't allow them?

Plain-English summary

The Secretary of Labor, Licensing, and Regulation and a Department of Legislative Services budget analyst asked the Attorney General to clarify what Maryland's Special Administrative Expense Fund (SAEF), a special fund used to help administer the state's Unemployment Insurance Law, can actually pay for. A 2002 legislative audit had found the Department of Labor, Licensing, and Regulation (DLLR) improperly using the SAEF for routine operating expenses like telecommunications, and DLLR pushed back, arguing SAEF funds could be used for any purpose the General Assembly authorized through the budget.

The opinion sided with the auditor's underlying concern. It concluded the SAEF statute itself lists the fund's permitted uses (chiefly reimbursing certain administrative costs, replacing federal unemployment funds spent outside federal guidelines, and acquiring office space for administering the Unemployment Insurance Law), and neither the annual budget bill nor a later budget amendment can expand those purposes. That limit follows from the general prohibition against "legislating in the budget," meaning a budget bill or amendment can direct how appropriated money is spent but cannot rewrite the substantive law governing a dedicated fund.

Applying that framework to DLLR's specific questions, the opinion found the SAEF could not be used to buy items like replacement equipment or hire new staff except temporarily as a revolving account pending federal reimbursement, and that ordinary occupancy costs like utilities, maintenance, and security are not part of "acquiring" office space unless the budget bill's language clarifies that ambiguity, or unless such costs are bundled into a lease payment as standard industry practice. It concluded the SAEF could not be used to cover "substituted operational costs," such as increased telecommunications charges from consolidating walk-in offices into regional claim centers, and suggested the General Assembly would need to amend the statute if it wanted to allow that use.

Currency note

This opinion was issued in 2004. 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, fund balance threshold, or fund-use restriction mentioned here.

Common questions

Can a state budget bill let an agency spend a dedicated fund's money on something the fund's own law doesn't list?
No, according to this opinion. It concluded that when the General Assembly creates a special fund dedicated to specific purposes, a budget bill may only appropriate money from that fund for those statutory purposes, since expanding the fund's uses through the budget would amount to impermissibly "legislating in the budget."

If a special fund's law is genuinely unclear about whether it covers a cost, does budget bill language matter at all?
Yes, but only as an interpretive aid. The opinion explained that where statutory language describing a special fund's permitted uses is ambiguous, budget bill language can help clarify the scope of that ambiguous statute, even though the budget bill itself cannot substantively rewrite or expand the fund's statutory purposes.

Could the agency use the fund to cover rising phone and technology costs after closing walk-in offices?
No. The opinion concluded the SAEF statute did not authorize using the fund for these "substituted operational costs," and that the General Assembly would need to amend the statute directly if it wanted to permit that kind of use.

Background and statutory framework

Maryland's Unemployment Insurance Law, codified in the Labor and Employment Article, is funded in part through several dedicated special funds, including the Unemployment Insurance Fund used to pay benefits, the federally-restricted Unemployment Insurance Administration Fund, and the SAEF at issue here, created in 1945 and governed by LE §8-419 through §8-422. The SAEF statute lists specific permitted uses: a revolving account for costs pending federal reimbursement under LE §8-421(b)(1), reimbursement of erroneously collected interest and improperly charged administration costs under LE §8-421(b)(2)(i)-(ii), replacement of federal funds lost or misspent under LE §8-421(b)(2)(iii)1 (language derived from §303(a)(9) of the federal Social Security Act), and acquisition of office space under LE §8-421(c). LE §8-420(b)(2) separately bars transferring SAEF money to any other fund except as the subtitle otherwise allows.

The opinion applied the established rule, drawn from the Court of Appeals' decision in Bayne v. Secretary of State, that permissible budget bill conditions must directly relate to the appropriated sum, cannot amend substantive legislation, and apply only during the fiscal year of the appropriation, a doctrine commonly called the prohibition against "legislating in the budget." It applied the parallel statutory budget amendment framework in the State Finance and Procurement Article, particularly SFP §7-209 and §7-217, which allow a budget amendment to spend unestimated or excess special fund receipts only for the purpose to which the money is already dedicated by state law.

Citations and references

Statutes:
- LE §8-421(b)(1), authorizing SAEF use as a revolving account pending federal reimbursement
- LE §8-421(b)(2)(i) and (ii), authorizing reimbursement of erroneous interest and improperly charged administration costs
- LE §8-421(b)(2)(iii)1 and 2, authorizing replacement of misused federal funds and acquisition of office space
- LE §8-421(c), specifying methods for acquiring office space with SAEF funds
- LE §8-421(d), barring use of the SAEF to displace available federal administrative funds
- LE §8-422(b), subjecting the SAEF to State budget and appropriation procedures
- LE §8-422(d)(1) and (2), authorizing direct payment or transfer to the UIAF for replacement purposes
- LE §8-422(e), authorizing temporary transfers from the UIAF to the SAEF pending federal reimbursement
- LE §8-420(b)(2), barring transfer of SAEF money to any other fund except as otherwise provided
- SFP §7-209(b) and (c)(1)(ii), governing budget amendments to special fund appropriations
- SFP §7-210(a), barring a budget amendment from changing substantive budget language
- SFP §7-217(a), limiting special fund budget amendments to the fund's dedicated statutory purpose
- 42 U.S.C. §503(a)(8) and (9), the federal Social Security Act provisions requiring replacement of misused unemployment administration funds

Cases:
- Allen v. Core Target City Youth Program, 275 Md. 69, 75, 338 A.2d 237 (1975), on the purpose of unemployment insurance
- Bayne v. Secretary of State, 283 Md. 560, 576, 392 A.2d 67 (1978), establishing the limits on permissible budget bill conditions

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/2004/89oag172.pdf

Original opinion text

172 [89 Op. Att'y

          BUDGETARY ADMINISTRATION

U NEMPLOYMENT I NSURANCE – A PPROPRIATE U SE OF F UNDS IN
THE S PECIAL A DMINISTRATIVE E XPENSE F UND

                     November 3, 2004

Honorable James D. Fielder, Jr., Ph.D.
Secretary of Labor, Licensing, and Regulation

Mr. Warren G. Deschenaux
Department of Legislative Services
Office of Policy Analysis

 You have each asked for our opinion concerning the

appropriate use of funds from the Special Administrative Expense
Fund ("the SAEF" or "the Fund"), a special fund administered by the
Department of Labor, Licensing, and Regulation ("DLLR").
Secretary Fielder has also posed specific questions concerning the
use of the SAEF to supplement federal funds received for the
administration of the Maryland Unemployment Insurance Law, to
pay expenses related to the occupancy, maintenance, and
improvement of space used for the administration of that law, and to
pay for "substituted operational costs incurred as a result of
consolidation of leased space."

   SAEF funds may be used for the various administrative

purposes set forth in the SAEF statute. Neither the budget bill nor
a budget amendment may expand those purposes. Among the
purposes listed in the SAEF statute is the acquisition of space used
for the administration of the Unemployment Insurance Law. While
there is no specific provision in the SAEF statute that allows for the
payment from the Fund of costs related to occupancy, such as
utilities, maintenance, and security, in some circumstances these
costs may be considered part of the cost of acquisition. Money in
the SAEF may not be devoted to a use not allowed by the SAEF
statute, such as operational expenses, unless the General Assembly
passes a law permitting that use.

Gen. 172] 173

                              I

                       Background

A. Maryland Unemployment Insurance Law

  Unemployment insurance is "intended to prevent economic

insecurity and to alleviate the consequences of involuntary
unemployment and economic distress." Allen v. Core Target City
Youth Program, 275 Md. 69, 75, 338 A.2d 237 (1975). The
Maryland Unemployment Insurance Law, and related regulations,
provide a process by which an individual can claim unemployment
insurance benefits. Annotated Code of Maryland, Labor and
Employment Article ("LE") §8-101 et seq.; COMAR 09.32.01. The
law is administered by various components of DLLR.[1]

  Like other state unemployment insurance laws, the Maryland

statute was enacted during the Depression in response to a part of the
Social Security Act that encouraged the creation of such laws. See
Chapter 1, Dec. Spec. Sess., Laws of Maryland 1936; §302 of the
Social Security Act, 49 Stat. 626 (August 14, 1935) codified at 42
U.S.C. §502; see also 48 Opinions of the Attorney General 172
(1963) (describing origin of State statute). The Federal
Unemployment Tax Act sets minimum standards that states must
satisfy in order to participate in the federal-state unemployment
compensation scheme and receive federal funding. See 76 Am. Jur.
2d Unemployment Compensation §§4, 19-20. The Maryland
Unemployment Insurance Law is to be construed consistently with
the various federal statutes governing unemployment compensation.
LE §8-103(a).

  Federal law establishes a Federal Unemployment Trust Fund,

which collects and disburses funds related to unemployment
compensation benefits. 42 U.S.C. §1104. One of the accounts in
that fund, known as the employment security administration account,
is used to provide grants to states for the administration of
unemployment compensation programs pursuant to §302 of the
Social Security Act. See 42 U.S.C. §§502(a), 1101(a),
1101(c)(1)(A)(i); see also 20 CFR §601.6.

174 [89 Op. Att'y

  Maryland law provides for the establishment of several special

funds to carry out the State Unemployment Insurance Law. Among
those funds are the Unemployment Insurance Fund (LE §§8-401 et
seq.), which is used to pay benefits and refunds, and the
Unemployment Insurance Administration Fund ("UIAF") (LE §8-
412 et seq.), which is used to pay various administrative costs
associated with the Unemployment Insurance Law. The UIAF
consists of money from a variety of sources, including amounts
provided under Title III of the Social Security Act ( 42 U.S.C. §501
et seq) and the federal Wagner-Peyser Act (29 U.S.C. §49 et seq.).
LE §8-414(a). Federal funds and State appropriations deposited in
the UIAF may be spent only in accordance with guidance of the
federal Secretary of Labor. LE §8-414(b)(2).

  The subject of your inquiry is a third fund, known as the

Special Administrative Expense Fund. The SAEF is to be devoted
to certain administrative costs associated with the Unemployment
Insurance Law, but is not subject to the federal restrictions
governing use of funds in the UIAF.

B. Special Administrative Expense Fund

  The SAEF is governed by LE §8-419 through §8-422.[2] The

Fund consists of money appropriated in the State budget from fines,
interest, and other penalties collected under the Maryland
Unemployment Insurance Law, money transferred from the UIAF,[3]
and any voluntary contributions to the Fund. LE §8-421(a).
Expenditures from the SAEF are subject to constitutional and
statutory budgetary and appropriation procedures. LE §8-422(b).
Following the end of each fiscal year, the Secretary is to direct the
State Treasurer to transfer to the General Fund any balance in excess
of $250,000 in the Fund that the Secretary has not been allocated in
accordance with the statute. LE §8-422(f). The statute also
provides for transfers to the UIAF in certain circumstances. LE §§8-
415(d), 8-422(d). However, money in the SAEF may not otherwise
be transferred to any other fund. LE §8-420(b)(2).

 The statute specifies several purposes of the SAEF. First, it

may be used as a revolving account to cover costs "that are proper
under the law" for the administration of the Unemployment
Insurance Law, pending federal reimbursement of those costs. LE
§8-421(b)(1).

 Second, the SAEF may also be used to make payments to

adjust for certain types of errors. For example, it may be used for:

            (1) reimbursement of interest on
        contributions collected erroneously. LE §8-
        421(b)(2)(i).

            (2) costs of administration of the
        Unemployment Insurance Law that have been
        improperly charged against federal funds
        credited to the UIAF. LE §8-421(b)(2)(ii).

            (3) replacement within a reasonable time
        of money that the State receives under §302 of
        the Social Security Act and that "because of
        an action or contingency has been lost or has
        been used for purposes other than or in
        amounts exceeding those necessary" for
        proper administration of the Unemployment
        Insurance Law. LE §8-421(b)(2)(iii)1.

  Finally, the Fund may be used to acquire office space "suitable

for effective administration" of the Unemployment Insurance Law.
LE §§8-421(b)(2)(iii)2, (c).

  The General Assembly has placed a limitation on all these

permissible uses of the Fund: the Fund should not displace federal
funds that would otherwise be available to pay for the administration
of the Unemployment Insurance Law. LE §8-421(d).

 On occasion, the Legislature has also conditioned the use of the

SAEF in the annual budget bill. For example, the budget bill for
Fiscal Year 1998 provided that:

       No funds derived from the Special
       Administrative Expense Fund (SAEF) shall be
       added to the budget through budget
       amendment, except as required to offset
       reductions in federal revenues below the level
       estimated in this budget, to address increased
       levels of unemployment, or to make critical
       repairs to eligible facilities. Unexpended
       funds in excess of $250,000 shall be
       transferred to the general fund as provided by
       law.

Chapter 3, Laws of Maryland 1997 at p. 170. See also Chapter 8,
Laws of Maryland 1994 (conditioning use of Fund for local office
acquisition or construction on submission of plans and cost estimates
to legislative budget committees for review and comment). Such
provisions are effective only during the fiscal year to which the bill
applies.

C. Legislative Audit

   In 2002, the Legislative Auditor found that DLLR had made

improper use of the SAEF Fund for routine operating expenses, such
as telecommunications. The Auditor recommended that DLLR
strictly comply with law governing the SAEF in the future.[4] Audit
Report concerning the Department of Labor, Licensing, and
Regulation (June 2002), p.13. DLLR objected to this finding on the
basis that it relied on legal advice that SAEF funds could be used for
any purpose authorized by the General Assembly. It stated that the
amounts in question had been identified in budget bill
documentation or were included in budget amendments that resulted
from shortages of federal funding. Id., Appendix, pp.3-4.

                                II

                            Analysis

  We address first whether the budget or budget amendment

process may be used to spend SAEF funds for a purpose other than
one identified in the SAEF statute. We then address several specific
questions that relate to the operation and use of the SAEF.

A. Transfer of SAEF Funds for Other Purposes by Budget
Process

  Secretary Fielder noted that attorneys in this Office have given

varying interpretations about the effect of the budget process on the
use of SAEF funds and requested clarification as to whether the
budget process would permit DLLR to use SAEF funds for purposes
in addition to those explicitly listed in the SAEF statute.

        1.    Use of SAEF Funds for Other Purposes under Budget
        Appropriation

  LE §8-422(b) states that money in the SAEF "shall be spent in

accordance with appropriations in the State budget." On its face, it
might appear that this provision allows SAEF funds to be spent for
any purpose authorized by the General Assembly in the annual
budget bill. However, the legislative history of LE §8-422(b)
demonstrates that it was enacted to clarify that the SAEF is subject
to the budget and appropriations process that applies generally to
moneys of the State.[5]

In any event, it is well established that, when the General

Assembly establishes a special fund dedicated to specific purposes,
the budget bill may only appropriate money from that fund for those
specific purposes. See 20 Opinions of the Attorney General 201,
203-4 (1935). While the Legislature may condition the use of
moneys from a special fund in the budget bill, it is constrained from
changing the statutory uses by the prohibition against "legislating in
the budget." The Court of Appeals has explained that permissible
conditions in the budget bill "are directly related to the expenditure
of the sum appropriated, do not amend substantive legislation or
duly adopted administrative rules and are effective only during the
fiscal year for which the appropriation is made." Bayne v. Secretary
of State, 283 Md. 560, 576, 392 A.2d 67 (1978) (emphasis added);
see also 73 Opinions of the Attorney General 43, 46-48 (1988)
(recounting history of prohibition against "legislating in the
budget"). "A budget bill is not a means by which the General
Assembly may enlarge the scope of a statute." 81 Opinions of the
Attorney General 269, 275 (1996). However, where the statutory
language specifying the use of a special fund is ambiguous, budget
bill language may aid in measuring the scope of the statutory
restrictions. Id. at 275-76 (ambiguous phrase "transportation related
purpose" could reasonably be construed to encompass stadium
parking lot in light of budget bill language authorizing the use of a
special fund grant for that purpose).

  Thus, the budget bill cannot expand the purposes for which

SAEF funds may be used. The General Assembly has specified
those purposes in the Unemployment Insurance Law. The
appropriation of moneys from the SAEF in the budget bill is limited
to those purposes. Of course, the General Assembly may expand
those purposes in separate legislation. And, to the extent that the
SAEF statute is ambiguous, language in the budget bill may shed
light on the meaning of that statute.

        2.   Use of SAEF Funds for Other Purposes under Budget
       Amendment

  The budget amendment procedure is set forth in Annotated

Code of Maryland, State Finance & Procurement Article ("SFP"),
§7-209. Under that statute, an appropriation for a program of an
officer or unit of the Executive Branch may be amended with the
approval of the Secretary of Budget and Management and the
Governor. SFP §7-209(b).

There are several important constraints on the content of a

budget amendment. While a budget amendment may change the
monetary amount of an appropriation, it "may not change any
language or substantive provision in the State budget." SFP §7-
210(a).

 Special restrictions govern the amendment of appropriations

from a special fund such as the SAEF. SFP §7-209(c)(1)(ii)
provides that "an amendment of an appropriation for a program ...
may permit the expenditure of money from a special fund ... as
provided in [SFP] §2-201 or §7-217(a)...." SFP §2-201 pertains to
the acceptance and use of gifts. The other cross-referenced
provision states:

            An office or unit of the State government
        may spend money from a special fund ... that
        is not estimated or included in the State
        budget or exceeds the estimate in the State
        budget and is paid into the State Treasury for
        a program after an approved amendment of a
        special ... fund appropriation for the program:

           (1) for the specific purpose to which the
        money is dedicated by State law or act of
        Congress; or

            (2) if the money is not dedicated to a
        specific purpose, with the approval of the
        Governor and as authorized in an approved
        budget amendment, for necessary current
        operations.

SFP §7-217(a) (emphasis added).[6] Thus, pertinent to the SAEF, a
budget amendment may appropriate unestimated or excess receipts
in a special fund "for the specific purpose to which the money is
dedicated by State law", i.e., the SAEF statute. The State budget
bill reiterates this authority with respect to federal and special funds.
See, e.g., Chapter 429, §5, Laws of Maryland 2004 at p. 1797
(amounts received pursuant to SFP §2-201 or SFP §7-217 may be
expended under an approved budget amendment); id., §7 (receipts
in excess of budget estimates for special and federal funds may be
made available by budget amendment).

  In 71 Opinions of the Attorney General 3 (1986), Attorney

General Sachs concluded that money could be transferred from one
special fund, the Transportation Trust Fund, to another, the
Maryland Deposit Insurance Fund Corporation, by means of the
budget amendment process. At that time, State law explicitly barred
transfers from the Transportation Trust Fund to the General Fund,
but was silent on transfers to other special funds.[7] Attorney General
Sachs relied on prior versions of SFP §7-209 and §7-217, as well as
similar versions of §§5 and 7 of the budget bill,[8] and concluded that
the transfer of unestimated and excess receipts was permissible.[9]

  The circumstances involving the SAEF are distinguishable.

Unlike the 1986 law governing the Transportation Trust Fund, the
SAEF statute provides that "[e]xcept as otherwise provided in this
subtitle, money in [the SAEF] may not be transferred to any other
fund." LE §8-420(b)(2) (emphasis added). Because the SAEF
statute specifically prohibits transfers not otherwise authorized in the
Unemployment Insurance Law, the use of SAEF funds could not be
expanded by transferring the funds by means of a budget
amendment.

B. Replacement of Funds Received under §302 of Social
Security Act

 The SAEF statute provides that DLLR may use moneys from

the SAEF:

        for replacement within a reasonable period of
        time of any money that the State receives
        under §302 of the Social Security Act and that
        because of an action or contingency has been
        lost or has been used for purposes other than
        or in amounts exceeding those necessary for
        the proper administration of [the
        Unemployment Insurance Law].

LE §8-421(b)(2)(iii)1. As noted above, §302 of the Social Security
Act provides for payments by the federal government to a state for
administration of the state's unemployment compensation law.

  The language of LE §8-421(b)(2)(iii)1 was derived directly

from §303(a)(9) of the Social Security Act. 42 U.S.C. §503(a)(9).
In 1939, Congress amended §303 of the Social Security Act to add
two conditions on the certification of payments under §302 to the
states. Those conditions are now codified at 42 U.S.C. §503(a)(8)-
(9). In essence, the Social Security Board was not to certify payment
to a state unless the law of the state restricted the use of the funds to
the purposes designated by the federal agency and provided for
"replacement" of those funds if the guidelines were violated. Thus,
the Social Security Board could not certify a payment unless the
state's law included provision for:

            (8) Effective July 1, 1941, the expendi-
       ture of all moneys received pursuant to section
       302 of this title solely for purposes and in the
       amounts found necessary by the Board for the
       proper and efficient administration of such
       State law.

            (9) Effective July 1, 1941, the replace-
       ment, within a reasonable time, of any moneys
       received pursuant to section 302 of this title,
       which, because of any action or contingency,
       have been lost or have been expended for
       purposes other than, or in amounts in excess
       of, those found necessary by the Board for the
       proper administration of such State law.

These provisions were evidently designed to ensure that the funds
distributed under §302 were spent in accordance with federal
guidelines and that the states would return funds to the extent that
they were not spent in accordance with those guidelines.

  At its next session, the Maryland General Assembly fulfilled

the federal conditions by amending Article 95A, §13(b) concerning
what was then called the Unemployment Compensation
Administration Fund to include language similar to the federal
statute. Chapter 17, Laws of Maryland 1941 at p.26. That provision
stated that any "replacement funds" needed to fulfill the federal
conditions would be appropriated from the State's general funds. In
1945, the Legislature created the SAEF as the source of replacement
funds and again incorporated the language of the federal statute in
Article 95A, §13(c). Chapter 270, Laws of Maryland 1945. With
respect to expenditures from the Fund, the statute provided:

        The moneys in this fund shall be used by the
        Board for reimbursement of interest on
        contributions erroneously collected and the
        payment of costs of administration which are
        found not to have been properly and validly
        chargeable against Federal grants (or other
        funds) received for or in the Unemployment
        Compensation Fund on or after January 1,
        1943. ...[procedural provisions concerning
        transfer and payment of funds] ...The moneys
        in this fund are hereby specifically made
        available to replace, within a reasonable time,
        any moneys received by this State pursuant to
        Section 302 of the Federal Social Security Act
        as amended, which because of any action or
        contingency, have been lost or have been
        expended for purposes other than, or in
        amounts in excess of, those necessary for the
        proper administration of the Unemployment
        Compensation Law. ...

That language was ultimately recodified as LE §8-421(b)(2)(iii)1.

  It is evident that paragraph (9) of the federal statute is the

source of the odd language that now appears in LE §8-
421(b)(2)(iii)1. The purpose of the federal statute was to ensure that
states would repay federal funds that were not used in accordance
with federal guidelines. The purpose of including this language in
the SAEF statute was to identify that fund, as opposed to the General
Fund, as the source of the replacement money, if the conditions in
§303 of the Social Security Act were violated.

  Several questions posed by Secretary Fielder pertain to this use

of the SAEF:

Should this be accomplished through direct expenditure of

SAEF funds or by transfer of SAEF funds to the UIAF?

  As explained above, under LE §8-421(b)(2)(iii)1, SAEF funds

are to be used to "replace" federal funds received, but not spent in
accordance with federal rules governing the use of such funds. For
that purpose, SAEF funds may be paid directly to the federal
government. See LE §8-422(d)(1). In addition, the SAEF statute also
allows the State Treasurer to transfer funds from the SAEF to the
UIAF "for costs of administration that are found to have been
improperly charged against the federal money credited to the
[UIAF]." LE §§8-422(d)(2), 8-421(b)(2)(ii). Thus, the expenditure
of SAEF funds pursuant to LE §8-421(b)(2)(iii)1 may be
accomplished by direct expenditure or by transfer to the UIAF.

  Assuming SAEF funds may be used to replace systems integral

to the operation of the unemployment insurance program that have
reached the end of their life cycle (such as mainframe laser
printers), are these expenditures best accomplished through the
budget process or the budget amendment process? May SAEF be
used to supplement/hire staff for purposes of increasing income to
the Unemployment Insurance Trust Fund?

   Because LE §8-421(b)(2)(iii)1 concerns the "replacement",

i.e., repayment, of federal funds, we do not believe that SAEF
funds would be available to purchase an item such as a mainframe
laser printer or to hire additional staff, at least under that particular
provision. As indicated in Part II.A. of this opinion, neither a budget
appropriation nor a budget amendment can expand the permissible
use of SAEF funds.

  SAEF funds could be used for those purposes temporarily

under another part of the statute. For example, if federal law
subsidizes the hiring of such staff, money from the SAEF could be
employed temporarily for that purpose until the federal funds are
received. However, once the federal funding is received, the SAEF
should be reimbursed. See LE §8-421(b)(1) (use of the SAEF as a
"revolving account" for costs ultimately to be paid out of federal
funds).

C. Uses of SAEF Funds Related to Space Used for
Administration of the Law

  Secretary Fielder poses several questions concerning the costs

of occupying space for the administration of the Unemployment
Insurance Law. The SAEF law clearly contemplates that the Fund
may be used for such costs in its capacity as a revolving fund
pending federal reimbursement. See LE §8-422(e) (authorizing
temporary transfer of funds from the UIAF to the SAEF pending
federal reimbursement if SAEF funds are used to "acquire, repair,
or maintain" office space); LE §8-421(b)(1) (authorizing use of the
SAEF as revolving fund pending federal reimbursement).
Otherwise, costs of occupancy may only be paid from the SAEF if
they are part of the cost of acquiring the space.

  The statute specifies how the Fund may be used to acquire

office space as follows:

        Subject to subsection (d) of this section and
        approval by the Board of Public Works, the
        Secretary may use the [SAEF] to acquire
        office space that is suitable for effective
        administration of [the Maryland
        Unemployment Insurance Law] by:

            (1) purchase;

            (2) lease;

            (3) construction; or

            (4) use of money in the [SAEF]:

                (i) to assist the State in financing a
            building that the State builds for 1 of its
            units in which space will be provided
            under a lease or other contract between
            [DLLR] and the State or its unit;

                (ii) to pay architectural fees;

                (iii) to make a deposit on a
            building or land; or

                (iv) for any other approved
            purpose that is necessary for
            acquisition of office space.

LE §8-421(c). Under LE §8-421(d), the SAEF may not be used in
a manner that displaces federal funds available for administrative
costs.

   How do we structure these occupancy expenses such as

utilities, maintenance, and security in facilities owned by the
[DLLR] and used for the administration of [the Unemployment
Insurance Law] to ensure that the expenses are viewed as an
integral part of the cost of acquiring office space for the effective
administration of [that law]?

  Section 8-421(c) authorizes the use of SAEF funds to

"acquire" office space. It further specifies several methods of
acquisition, purchase, lease, construction. It also authorizes use of
the funds for specific purposes related to the leasing, construction,
or purchase of a building through another State agency or "for any
other approved purpose that is necessary for acquisition of office
space" (emphasis added). Thus, the key criterion for determining the
permissible use of funds under this subsection is whether the use is
related to the "acquisition" of office space.

  The statute does not define "acquire" or "acquisition." The

dictionary defines "acquire" as "to come into possession or
ownership of; get as one's own" and "acquisition" as the "the act of
acquiring or gaining possession." Random House Dictionary of the
English Language 18 (2d ed. 1987); see also Black's Law Dictionary
24 (7th ed. 1999). There are various ways by which one may acquire
or gain possession of something, e.g., construct, purchase, or lease.

   Ordinarily, the acquisition of space, i.e, taking possession or

ownership of it, does not include ongoing operational expenses
such as utilities, maintenance, and security. For example, when an
agency purchases, constructs, or refurbishes a building, payments for
utility services, routine maintenance, and security are generally not
part of "the act of acquiring or gaining possession", but rather
obligations resulting from the fact of possession. However, some
landlords may include such costs as part of a monthly lease payment
and it may be difficult or burdensome for the landlord to separate out
those costs. As a result, there is some ambiguity as to whether the
SAEF statute permits the use of the SAEF for such costs. In these
circumstances, the budget bill may illuminate the scope of the
statute. See 81 Opinions of the Attorney General at 275-76. In our
opinion, if the budget bill authorizes the use of the SAEF to pay
utilities, maintenance, and security expenses associated with space
that DLLR occupies, those expenses may be included as part of the
cost of acquisition.

   May the SAEF be used to purchase desks and modular

furniture, computers, phone networks, and other equipment for
facilities purchased with SAEF monies?

  Traditionally, furniture, computers, and telecommunications

equipment have generally not been part of the cost of acquiring
office space. To the extent that it has now become a standard
industry practice to provide certain types of furnishings or technical
equipment as part of office space, those costs may be paid with
SAEF monies. Otherwise, the SAEF may not be used for these
purposes, except in the limited circumstances in which the SAEF
functions as a revolving fund pending federal reimbursement.

D. Use of the SAEF for "Substituted Operational Costs"

  Secretary Fielder notes that, over the past several years, DLLR

has changed the operation of the unemployment insurance program
to take advantage of new technologies. Previously, DLLR operated
26 walk-in offices throughout the State. In recent years, DLLR has
reduced the number of physical offices to five regional claim centers
and, at the same time, has begun accepting claims over a toll-free
telephone number and over the Internet. These changes have
increased telecommunications charges and reduced rent and building
expenses.

  May SAEF be used for telecommunications costs where those

costs are incurred as a result of consolidation of offices to save
occupancy costs and to take advantage of new technologies?

 For the reasons set forth above, the SAEF may not be used for

these purposes. The General Assembly may wish to consider
amending the statute to permit the SAEF to be used for such
operational expenses.

                             III

                        Conclusion

  SAEF funds may be used for the various administrative

purposes set forth in the SAEF statute. Neither the budget bill nor
a budget amendment may expand those purposes. Among the
purposes listed in the SAEF statute is the acquisition of space used
for the administration of the Unemployment Insurance Law. While
there is no specific provision in the SAEF statute that allows for the
payment from the Fund of costs related to occupancy, such as
utilities, maintenance, and security, in some circumstances these
costs may be considered part of the cost of acquisition. Moneys in
the SAEF may not be devoted to a use not allowed by the SAEF
statute, such as operational expenses, unless the General Assembly
passes a law permitting that use.

                              J. Joseph Curran, Jr.
                              Attorney General


                              Robert N. McDonald
                              Chief Counsel
                               Opinions and Advice

[1] Title 8 of the Labor and Employment Article, otherwise known as
the Maryland Unemployment Insurance Law, is administered by the Office
of Unemployment Insurance and the Office of Employment Services. See
LE §8-301 et seq.

[2] The SAEF was created in 1945. See Chapter 270, Laws of
Maryland 1945.

[3] Funds may be transferred to the SAEF temporarily from the UIAF
when the Secretary uses the SAEF to cover expenses for the acquisition,
repair, or maintenance of office space, and those expenses will be
reimbursed from federal funds. In those circumstances, the Secretary may
transfer UIAF moneys to the SAEF, so long as the transfer does not
exceed the amount of the federal reimbursement and equals the "fair
reasonable rental value" of the land or buildings acquired or of the
proportionate amount of space used. LE §8-422(e).

[4] The Auditor also suggested that DLLR discuss with various control
entities whether $4.7 million should be reimbursed to the General Fund.
We understand that, after review of the circumstances of the expenditures,
the control entities recommended against reimbursement of the General
Fund.

[5] Prior to 1986, the funds in the SAEF were treated as "unbudgeted
funds" and were spent under an agency resolution without a legislative
appropriation. After a legislative audit questioned that process, an opinion
by Attorney General Sachs concluded that funds in the SAEF are "moneys
of the State" for purposes of the Maryland Constitution and therefore
subject to budget and appropriation procedures. See Opinion No. 86-014
(March 10, 1986) (unpublished). The General Assembly also amended the
statute to clarify that those procedures applied. Chapter 399, Laws of
Maryland 1986, now codified at LE §8-422(b). See Floor Report for
Senate Bill 1040 (1986) (explaining that the legislation arose out of the
legislative audit and was designed to ensure that SAEF funds were
appropriated through the budget process).

[6] SFP §§7-209 and 7-217, among others, were substantially
amended in the Budget Reconciliation and Financing Act of 2004.
Chapter 430, §1, Laws of Maryland 2004. The pertinent amendments
became effective on June 1, 2004. Id., §34.

[7] Shortly thereafter, the law governing the Transportation Trust Fund
was amended to restrict transfers to special funds. Chapter 291, Laws of
Maryland 1987, codified at Annotated Code of Maryland, Transportation
Article, §3-216(f).

[8] The 1986 opinion also reasoned that provisions in a budget bill
could "qualify" existing law and cited a 1949 opinion that stated that the
Legislature could repeal or amend an existing law in the budget bill. 71
Opinions of the Attorney General at 7, citing 34 Opinions of the Attorney
General 105 (1949). On its face, that proposition appears inconsistent
with the Court of Appeals' decision in Bayne and other opinions of this
Office concerning the prohibition against legislating in the budget. See
Part II A 1 of this opinion. However, we note that the 1986 and 1949
opinions both concerned "qualification" of laws concerning the budget
process, such as the budget amendment procedure, that are currently
codified in Title 7 of the State Finance and Procurement Article. During
the first two decades of Maryland's executive budget system, those
provisions were routinely enacted as part of the budget itself. See, e.g.,
Chapter 206, §3, Laws of Maryland 1918 (budget amendment procedure);
see also Letter of Assistant Attorney General Richard E. Israel to Senator
John A. Cade (February 28, 1985). In 1939, the General Assembly
codified those provisions in Article 15A, a predecessor of the State
Finance and Procurement Article. Chapter 64, Laws of Maryland 1939.
Thus, a distinction may be made between a budget bill provision that
qualifies the type of budget procedure that has long been part of the budget
bill and an attempt to alter substantive legislation that governs a particular
fund or agency. Moreover, to the extent that a provision concerning
budgetary procedure appears in the budget bill as submitted by the
Governor, one of the major reasons for the prohibition against "legislating
in the budget", i.e., that the budget bill is not subject to a gubernatorial
veto, is of less concern.

[9] The situation involved in the 1986 opinion had the further
complication that the funds would be transferred from one department to
another. Because the law then, as now, generally barred the use of budget
amendments to transfer funds between departments, Attorney General
Sachs advised that it would be necessary for the Governor to declare an
emergency to invoke one of the exceptions to the prohibition on inter-
departmental transfers. See SFP §7-209(e); 71 Opinions of the Attorney
General at pp. 7-8.