Maryland is urged to rein in spending

Cut increase by 50%, Assembly leaders say

December 19, 2007|By Bradley Olson | Bradley Olson,Sun reporter

Afraid that the state could be headed for a recession, a committee of General Assembly leaders recommended last night cutting state spending increases by almost half.

If Gov. Martin O'Malley follows the benchmark set by the Spending Affordability Committee - a bipartisan group of lawmakers assigned to keep state spending from exceeding economic growth - Maryland would spend 4.27 percent more on public services than it did last year, a smaller increase than in all but five of the past 25 years.

Among the likely effects in the coming fiscal year would be a significant reduction in the aid local governments expected to fund kindergarten-through-12th-grade education.

The spending slowdown was proposed less than a month after a special legislative session in which lawmakers raised taxes by $1.3 billion a year. Legislators and analysts said that helped shore up Maryland's finances but the state remains in a tenuous position because of economic uncertainty.

"The forecast is a considerable improvement over that which we were looking at in September and certainly a manageable outlook, far more manageable than that which preceded the special session," said Warren G. Deschenaux, the legislature's chief fiscal analyst.

Republicans said the state should reduce spending growth even more.

"It's less, but I don't think it's low enough," said Del. Anthony J. O'Donnell, the minority leader from Southern Maryland. "It has to be reined in more than that."

O'Malley, who is required by state law to submit the budget in January, is not bound by the committee's recommendation. But a spokesman said the governor's staff would "make every effort" to follow it.

Even if he exceeds the suggested limit, the General Assembly is likely to cut the governor's proposal so that the final budget adheres to the guideline, legislators said.

The figure adopted yesterday would allow an $847 million increase in spending on general government and higher education, bringing spending on those services to about $20.7 billion in the fiscal year that begins July 1.

"On the assumption that the economy doesn't tank, I think we've taken some strong actions during the special session that have needed to be taken for many years," said Del. John L. Bohanan Jr., a St. Mary's County Democrat who is co-chairman of the committee. "Once the economy recovers, I think we're going to be in excellent shape. We've managed through the down periods very well."

`Mixed picture'

Maryland's economic growth was healthy in the previous three years, but the data for 2007 present "a mixed picture," according to a draft report the committee submitted to lawmakers. Employment is up 1.1 percent through November, and income is up nearly 6 percent, but the housing market continues to slump, with sales falling 22 percent through November, according to the Maryland Association of Realtors.

If employment continues to slow or declines, the state's fiscal stability will be thrown out of balance again, Deschenaux said.

Rebound expected

The report projects employment growth of less than 1 percent but also forecasts a quick rebound when tens of thousands of workers relocated to state military installations by the Pentagon's base closure process begin to arrive in 2010.

The problems in Maryland reflect national trends, according to a report released last week by the National Conference of State Legislatures.

The housing downturn has hurt 24 states and Puerto Rico, and real estate transfer taxes have declined in at least a dozen states, the report says.

According to figures from the state comptroller's office that were disclosed to the committee yesterday, transfer taxes collected this year in Maryland are expected to fall $50 million short of estimates.

Eleven states, including California, Florida and New York, have lowered their revenue forecasts for the coming year. In Arizona, revenue collections were 7.3 percent below the estimate.

Early action

Corina L. Eckl, fiscal programs director for the nonpartisan National Conference of State Legislatures, said Maryland dealt with its fiscal problems earlier than many other states. Florida, which cut $1 billion from state spending, made a similar effort.

"The sooner a state battens down the hatches, the better it will ride out the storm," she said.

Lawmakers said they took the possibility of a recession into account during the special session when they voted to recommend reducing spending by $550 million through a combination of specific cuts and general benchmarks for O'Malley.

The specific actions included reducing the growth in aid to local school systems, eliminating state grants to local governments to make up for tax exemptions given to power plants and cutting 500 vacant positions in state agencies.

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