"We're on the right track, but we need to pick up the pace in my opinion," Levy said. "The recent revenue reductions are more the beginning than the end. I think the economy is in serious trouble, and our revenue estimates are going to reflect that, so the sooner we get our house in order and in preparation for this, the better off we're going to be."
The state has about $150 million in its Rainy Day Fund to cover unexpected slowdowns, but if revenues fall below expectations again, as they have in the past few months, the state could face a deficit.
That would probably force O'Malley to decide on additional cuts, which can be enacted with the consent of the Board of Public Works. Another special legislative session would be logistically difficult this year because the State House will be closed for renovations, starting next month.
Rick Abbruzzese, a spokesman for O'Malley, said the discussions on the budget are continuing.
"It's early in the process, and the governor is going to continue to work with members of the General Assembly to make the appropriate cuts in the budget," he said.
Some lawmakers are pushing for legislation that would raise income taxes for residents in the top brackets. One proposal targets those earning $500,000 or more to lessen the impact of budget cuts or to replace the revenue from the computer-services tax.
A lobbying blitz has been aimed at rolling back the computer tax that was passed during last year's special session, along with a number of other tax increases, but legislative leaders say a repeal isn't possible without an alternative revenue source.
"We can't afford to just do a repeal without any other offset because of our fiscal situation," said Sen. Rob Garagiola, a Montgomery County Democrat who is helping develop the income tax proposal. The legislature temporarily raised income taxes on high-income residents during the 1990s recession, when the state faced similar budget shortfalls, he said.
Many lawmakers from both parties say they don't want to raise taxes after the $1.3 billion in increases they approved in the November special session.
Sen. J. Lowell Stoltzfus, an Eastern Shore Republican, said during yesterday's Senate hearing that he was concerned about the state's reliance on cutting transportation or environmental projects to keep the budget balanced.
"I'm concerned about all these transfers," he said before asking Warren Descheneaux, the General Assembly's top fiscal adviser, where the state stands in eliminating the long-term gaps between spending and revenue.
"You haven't made progress, but you haven't lost ground," Descheneaux said, adding that the shortfalls in expected revenue put the state back where it started when O'Malley submitted his budget.
bradley.olson@baltsun.com
Sun reporters Laura Smitherman and Gadi Dechter contributed to this article.
