Operating on the budget

Our view : This week's round of state budget reductions is unlikely to be the last as the recession hits Maryland and spending priorities face potentially painful cuts

October 12, 2008

As the economy and tax revenues continue to fall, the time for trimming is at hand. Government cost-cutting can be deft, even helpful, surgery that leaves a fiscally challenged budget hardly feeling a thing. Or it can be butchery where a spending plan limps off the operating table missing a vital program or two.

The good news in Maryland is that Gov. Martin O'Malley and his fellow members of the Board of Public Works will likely perform about $250 million worth of precision cuts on the state budget this Wednesday; the bad is that the time for hacking is coming.

We don't know exactly what programs the governor and the board will choose to pare, but a list released last week suggests most of the choices are reasonable. They are not pain-free, particularly to the extent that K-12 education and public safety are affected, but they are not rash or incautious.

If there is a criticism to be offered, it's that too many of the items, such as employee furloughs or a raid on the retiree health account, represent only short-term savings and won't help beyond the current fiscal year. The budget difficulties for Maryland are likely to continue as the nation slides deeper into recession.

How bad will things get? If the recession of the early 1990s is any example, Maryland must be prepared to trim substantially more. During the second term of William Donald Schaefer, the state budget was rewritten eight times in less than two years as revenue projections shifted steeply downward.

With such a stormy financial outlook, it's reasonable to ask: Why not first tap the $739 million rainy day fund budgeted for unexpected contingencies? Certainly, it's been done before. The prudent answer is not yet. In the Schaefer years, the $127 million reserve account was emptied fairly early on. Today, any decision to reduce the fund below 5 percent of revenues would require the General Assembly's explicit approval.

Whether slots are approved by voters in November, the state will have to cut deeper in the months ahead. Legislators ought to be prepared to tap the rainy day fund next January. That won't harm the state's high bond rating if offered as part of a prudent budget plan.

Local governments would be wise to take note: These woes are coming your way. The budget-cutting is likely to continue, and similar decisions will have to be made on the city and county level.

Even if approved, slots won't be riding to the rescue, either. They aren't expected to be fully in line until fiscal 2013, when the recession should be a memory. For the foreseeable future, however, balancing the state budget will require more intensive care.

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