A litany of painful economic news hit home yesterday when Maryland's fiscal leaders learned the state faces a $432 million revenue shortfall that could rise to nearly $1 billion in the next fiscal year.
Slumping tax revenues will mean steep state agency budget cuts in the months ahead, and will require Gov. Martin O'Malley to scale back the spending plan he presents to the General Assembly in January. State leaders have begun meeting to decide where to trim hundreds of millions of dollars, and some have discussed eliminating employee pay raises and shifting teacher pension costs to counties.
The bad news is expected to continue. O'Malley plans to announce today that his administration will delay $1.1 billion in transportation projects over the next six years. The projects are funded through a transportation account distinct from the general budget.
The dire forecasts are likely to bolster the call from some quarters for voters to approve the legalization of slot-machine gambling in the state through a November referendum, which would bring a new revenue stream to state coffers. The projections also have stoked a debate over the level of state spending. Lawmakers are required to adopt a balanced budget, and if state revenues fall short of expectations during the year, the Board of Public Works has the authority to roll back spending. Budget Secretary T. Eloise Foster declined to say where possible spending cuts might be made but said: "There will be no sacred cows."
Senate President Thomas V. Mike Miller said that budget savings next year could come from eliminating merit pay increases for state employees, altering formulas for public and higher education and requiring that counties contribute a greater share of contributions to teacher pensions.
Lawmakers might also consider rolling back a highly promoted program adopted last year that aims to reduce the ranks of Marylanders without health insurance, Miller said, singling out subsidies to small businesses that help offset the cost of employee insurance. But he emphasized that all discussions are at a preliminary stage. The budget predicaments come as the economy continues to be dragged down by a slumping housing market, credit crunch and rising energy and food prices. Those factors, in turn, impact the state's finances. Tepid consumer spending translates into lower sales tax collections, for instance, and motorists driving fewer miles means they are buying less gas that's taxed.
"We will come together in the weeks ahead to address this latest budget challenge presented to us by our national economy," O'Malley said in a statement, "and we will do so in a way that recognizes the burden and challenges faced by our middle-class families as the cost of everything continues to rise even as wages remain stagnant."
O'Malley convened a special legislative session last fall to tackle a $1.7 billion budget shortfall just as the economy was faltering. The legislature approved a package of tax increases, spending cuts and slots.
The same economic forces have hurt the state's transportation fund, which gets revenue from the gas tax, vehicle titling and other sources. Transportation Secretary John D. Porcari said yesterday that part of the problem stems from last week's announcement that the federal highway trust fund is expected to run out of money this month.
O'Malley administration officials argued that the state would be in worse shape had last year's budget package not been enacted. They pointed to a report from the Center for Budget and Policy Priorities that found more than half of states are confronting a total budget shortfall of about $48 billion this fiscal year.
The state can rely on a $240 million surplus in the $14 billion general fund to cover the shortfall in the current year. House Speaker Michael E. Busch said the budget cuts would be "equitable across the entire system" so that essential programs aren't crippled. He also said that lawmakers might shift funds from surplus accounts to balance the budget until the economy recovers.
"Once you make long-term structural cuts, it's hard to restore those programs," he said.
Members of the Board of Revenue Estimates, which released the budget projections yesterday, said they expect the economy to remain "very sluggish" through the middle of next year, with "relatively healthy" economic growth returning in 2010.
One budget solution that legislative leaders said would be off limits is tax increases. Lawmakers say there is little support for that after they raised taxes by $1.3 billion during the special session, and business leaders who addressed the revenue panel yesterday about the state of their respective industries echoed that sentiment.
"I don't want to be the one to tell Joe Six-Pack next year that he's going to take another hit," said Betty Buck, president of Buck Distributing Co., one of the largest Miller Brewing Co. distributors in the country. She said her sales have declined drastically with the recent economic turmoil.
