City, counties brace for deep budget cuts

Potential $400 million loss in state aid could force local tax increases, layoffs

General Assembly

April 14, 2004|By David Nitkin | David Nitkin,SUN STAFF

With state leaders failing to reach agreement on taxes and slots, Gov. Robert L. Ehrlich Jr. says he will balance his next budget with deep cuts, and local governments are bracing for the biggest hit.

County and city officials say they could be forced to raise property or income taxes, or reduce public safety and trim teaching positions because of a potential $400 million cut in state aid threatened by the governor.

The impending crisis is generating grave predictions. Senate President Thomas V. Mike Miller repeated yesterday that he favors a special legislative session to deal with slots and budget issues. Without a deal, he said, the General Assembly should consider stretching out the continuing mandates of a contentious $1.3 billion-a-year education reform program to lower annual costs.

"As a Democrat, it is tough to propose this, but we cannot afford Thornton now," Miller said, referring to the 2002 eduction plan. "We are going to have to move to fully fund Thornton but delay the funding over a longer period of time."

Lawmakers and the governor could not broker a deal on new revenues before leaving Annapolis this week at the close of the annual legislative session. The House of Delegates rejected Ehrlich's slot machine bill for the second straight year, and the governor refused to accept a package of income and sales tax increases offered by the House.

As a result, revenues are projected to fall at least $830 million below planned expenditures in the roughly $24 billion budget that state officials will start work on now and release in January. Ehrlich is required by law to propose a balanced spending plan, so the hole will be filled through cuts and transfers - and the dim possibility of more tax dollars if the economy performs better than expected.

Administration officials are talking openly about making much of the reductions in a single chop: eliminating the $400 million the state gives counties in retirement payments for teachers, library workers and community college employees.

"Nothing is predetermined, but it is something the governor has mentioned for two years now," said the state budget secretary, James C. "Chip" DiPaula Jr., adding that county officials could have avoided the pain had they successfully lobbied their lawmakers to pass a slots bill.

"It's a little late now," DiPaula said. "We wanted the counties to pressure their legislators. That didn't happen. Now we are left with no other options."

Local government leaders say the reduction would devastate their budgets. "You can't do it," said Baltimore County Executive James T. Smith Jr., noting that the county's share of retirement funding would be between $55 million and $60 million in a $1.2 billion budget.

"The issue next year cannot be slots versus taxes because slots will have nothing to do with next year's budget," Smith said. "It has to be state revenue versus slashing local services. The governor has got to come up with a revenue plan. He cannot rely on cuts to Medicaid and cuts to local government. I don't think the people will allow it."

Montgomery County Executive Douglas M. Duncan, a Democrat who could challenge Ehrlich in 2006, said the Republican governor "is abdicating long-held responsibilities."

"He's making us do the cutting for him," Duncan said. "He wants to shift the blame."

For weeks, delegates in Annapolis have been demanding that DiPaula and state officials explain their plans for the budget. During a closed-door meeting with House leaders last week, DiPaula offered only a vague explanation, saying that an $830 million projected deficit would be filled in part through at least $300 million in cuts to Medicaid and local government, plus an additional $305 million in cuts if slots did not pass.

The choice, said state Democratic Party spokesman Ryan O'Doherty, was never cuts or slots. It was cuts, or cuts and slots, he said.

Driving the shortfall are the continuing mandates of the six-year education funding reform package adopted in 2002, as well as higher health care costs.

Ehrlich promises he will continue to meet the Thornton plan's obligations, but local officials say the pledge sounds dishonest. If Ehrlich provides higher amounts for classroom spending but withdraws teacher retirement money, he would be failing to provide for complete education needs, they say.

"Fully funding our schools means funding all the different segments," Duncan said. "We are going to remind people of the governor's promise to fully fund education without slots."

While Ehrlich can shift costs to local governments to keep his pledge not to raise sales or income taxes, counties don't have that luxury, officials say. Cuts to local aid will force local governments to raise taxes, Baltimore Mayor Martin O'Malley said.

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