More transportation cuts forecast

Legislative analyst warns decline in driving, taxes will reduce state's revenue

November 19, 2008|By Laura Smitherman | Laura Smitherman,laura.smitherman@baltsun.com

With the auto industry crippled by the economic downturn, Maryland may need to cut $2.5 billion from the transportation budget for highways, transit and other projects - on top of $1.1 billion in recent reductions, a top fiscal analyst warned state lawmakers yesterday.

The additional cuts to the $9.4 billion, six-year transportation spending plan are needed because of a decline in taxes and fees brought on by slower car sales and lower gas consumption, said Warren G. Deschenaux, the chief budget analyst from the nonpartisan Department of Legislative Services. He gave a presentation to a key fiscal committee last night.

Without an economic rebound - and none is projected - the state might not be able to afford new projects and might only be able to maintain current infrastructure for a few years, Deschenaux said.

Transportation Secretary John D. Porcari said that while his office is still reviewing the report, the forecast appears to paint a more dire situation than his agency is anticipating. He has wide latitude in setting the six-year capital spending plan and will present it to the General Assembly in January, using new projections from the Board of Revenue Estimates due next month, as well as his agency's own forecast.

Deschenaux's report is "one analysis of a six-year revenue projection," Porcari said. "We don't necessarily agree with it."

Maryland is in the throes of a budget crisis brought on by declining tax revenue and a sinking national economy.

Facing gaping shortfalls, lawmakers and bureaucrats in Annapolis are likely to clash in the coming months over spending on infrastructure, including transportation projects. Some argue that spending on roads and similar projects would help create jobs and spur economic recovery; others say the state should not increase spending or take on more debt at this time.

"Both of those arguments are valid," said Sen. James "Ed" DeGrange Sr., an Anne Arundel County Democrat on the Spending Affordability Committee, which heard the briefing from Deschenaux. "There is going to be some downturn in transportation funding. ... It's going to be a hard pill to swallow."

The state is confronting budget challenges on a number of fronts.

For instance, with other capital projects such as prisons, school construction and environmental initiatives that are funded by borrowing, debt-service payments are expected to exceed revenue in the next few years. Deschenaux recommends raising the state property tax by 2 cents over the next five years to bridge the gap, but the idea is likely to be unpopular with Gov. Martin O'Malley and lawmakers, who approved tax increases last year and worry about voter backlash.

Maryland officials announced $1.1 billion in transportation project cutbacks in September. As a result, upgrades to the MARC system will take longer, and improvements to intersections affected by the Pentagon's military base realignment process affecting Fort Meade, Aberdeen and Bethesda will be delayed.

Spending on capital projects is essential to minimize road congestion and respond to a growing population and increased demand for transit options, said Donald C. Fry, president of the Greater Baltimore Committee.

Further cuts could imperil expansion plans at BWI Marshall Airport and plans for dredging at the port of Baltimore, he said.

"The funding of transportation is one of our most significant economic growth challenges, and this clearly takes us backward," Fry said. "It certainly threatens the solutions that we're trying to find to our mobility challenges."

More cutbacks would follow efforts last year to shore up the transportation trust fund by directing a portion of sales tax revenue to it and by increasing other taxes that are funneled there.

The legislative services report assumes that titling tax revenue will plunge $1 billion over the next six years, as car sales in Maryland are on track to decline 10 percent this year, according to the Maryland Automobile Dealers Association. It also assumes a $139 million dip in motor fuel tax revenue as the number of vehicle miles traveled has declined.

Porcari took issue with the forecast's assuming a $464 million increase in his agency's operating budget, saying his agency has implemented "strict cost containment measures." He also said that titling taxes often rebound within a few years of a recession as people replace older vehicles and the economy recovers.

Deschenaux said he assumed some economic growth in the out years, and that he uses conservative estimates because of uncertainty over the solvency of the federal highway trust fund, which also helps pay for projects in the state.

One saving grace for transportation programs could be a federal economic stimulus package that would include money for infrastructure projects that have completed the planning process and are ready to begin. A lame-duck Congress is considering billions of dollars of public works funding, but action on a bill might stall until next year.

FALLING REVENUE

Projected money for transportation projects is dropping:

* Vehicle title fees: down $1.03 billion

* Motor fuel taxes: down $139 million

* Corporate income and sales taxes, misc. MVA fees and other items: down $120 million

* Bond sales (constrained by state formula): down $1.22 billion

Total reduction, over six years: $2.5 billion

Source: Department of Legislative Services analysis

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