Gov.-elect Martin O'Malley will face fiscal problems nearly as dire as those endured by Gov. Robert L. Ehrlich Jr., with state spending expected to outpace tax receipts by more than $1 billion a year for the foreseeable future without major policy changes, nonpartisan General Assembly analysts predicted yesterday.
One of Ehrlich's major claims on the campaign trail was that he turned $4 billion in predicted deficits into a $2 billion surplus. That was true, but the report presented yesterday to the state Spending Affordability Committee indicates that the state's fiscal turnaround was a blip of good fortune masking a long-term, structural imbalance between revenues and spending that the Ehrlich administration did not fix.
"Structural deficits require structural solutions, and as a result, everything is going to have to be on the table," said O'Malley spokesman Steve Kearney, who watched the fiscal briefing with First Deputy Mayor Michael Enright, who will be named O'Malley's gubernatorial chief of staff today.
Required increases in education spending, combined with Medicaid increases and other commitments, will outpace expected growth in income and property taxes and lottery proceeds, the analysts said.
When Ehrlich took office four years ago, he faced an immediate crisis, forcing him to make budget cuts the day he took office. The new projections suggest that the short-term situation isn't as bad as it was then.
Surging revenues, particularly from real estate and capital gains, helped push state budgets into the black in the latter years of Ehrlich's term. Spending cuts, one-time transfers, and tax and fee increases helped Ehrlich produce short-term surpluses.
The good news for O'Malley is that Ehrlich is leaving behind more than $800 million in surplus rainy day funds that can be spent in the fiscal 2008 general fund budget - expected to total nearly $15 billion - without jeopardizing Maryland's AAA bond rating.
$400 million hole
The bad news is that the budget, which will be prepared jointly by the outgoing Ehrlich administration and incoming O'Malley administration, will still have a $400 million hole to be filled by cuts or revenue increases.
In some ways, the situation O'Malley faces is worse, said Del. Richard S. Madaleno Jr., a Montgomery County Democrat who was elected to the Senate this month. In the past four years, Ehrlich has raided special funds and used one-time transfers to keep the budget balanced, and many of those options are no longer available, Madaleno said.
