For lawmakers, a $1.9 billion mess

Record shortfall could threaten O'Malley priorities, including tuition freeze and bay cleanup

January 13, 2009|By Laura Smitherman and Gadi Dechter | Laura Smitherman and Gadi Dechter, and

With the economic recession in full swing, Maryland lawmakers return to Annapolis tomorrow to tackle the largest budget shortfall in state history, a painstaking exercise expected to rile constituents and spark competition over dwindling resources.

The $1.9 billion shortfall in the state operating budget means that many programs are likely to be cut or remain at the same funding level, an effective decrease when taking into account inflation and population growth. It means local governments probably will take a hit that could translate to fewer services for residents. And in a political climate hostile to tax increases, it means state employees could face layoffs and scrutiny of their benefits.

"We're all coming in knowing the dire economic times that we are living in and seeing how fearful many of our constituents are," said Del. Maggie L. McIntosh, a Baltimore Democrat and a leader in the House of Delegates. "It's sobering."

The budgetary crisis is such that many lawmakers said they don't expect to accomplish much else in the 90-day General Assembly session because they can't afford costly new initiatives. Some lawmakers have even floated the improbable scenario of adjourning immediately after a budget is approved to save money by cutting the session short.

Gov. Martin O'Malley, hamstrung by the situation, plans to roll out a legislative agenda primarily focused on inexpensive policy changes and social justice issues, such as strengthening domestic violence laws, according to aides. As for his budget, which he will submit to the legislature this month, aides said the governor wants to maintain a safety net for families that are hurting financially.

The budget "is still very much a work in progress, but he is committed to making sure families have access to resources during this recession," spokesman Rick Abbruzzese said, "and also to protecting progress that we've made over the last two years."

Economic problems have dogged O'Malley for much of his tenure. Shortly into his first year in office, he pushed through tax increases to plug a structural deficit. Then, as tax revenues fell with the slowing economy, he was forced to reduce spending by hundreds of millions of dollars over the next year.

Even after voters ratified his proposal in the last election to raise more money through legalizing slot machines, the state could have trouble balancing its operating budget for years to come.

Democrats, who control both chambers of the legislature, emphasize that many states are in far worse shape, noting that California teeters near insolvency. They maintain that O'Malley was prescient in putting Maryland on more solid financial footing.

"Through no fault of the state of Maryland but because of the national economy, we're in this position," House Speaker Michael E. Busch said.

But Republicans contend that O'Malley's stewardship is partly to blame for the financial morass. They say the $1.3 billion in tax increases worsened the economic decline and criticize the administration for not slowing spending further. Last week, the Maryland GOP formed a partisan commission to make recommendations for tax relief. Members plan to travel the state and hold town hall meetings.

"I can't deny there is a national part to all of this, but Maryland has been responsible for our poor budget position," said Senate Minority Leader Allan H. Kittleman, who represents Howard and Carroll counties. He called for a spending freeze. "We can't have anything that's sacred where we say, 'We're not going to cut that program.' "

The state's finances have deteriorated so much that several initiatives championed by O'Malley could be curtailed, including an expansion of Medicaid eligibility and a tuition freeze at state universities. And a multimillion-dollar fund created to combat pollution in the Chesapeake Bay is likely to be reduced to a nominal sum as a placeholder, lawmakers and aides said.

The $1.9 billion shortfall represents the gap between anticipated growth in programs and incoming revenue. Because sales and income tax receipts have slowed considerably, freezing spending resolves only about half of the problem.

O'Malley and lawmakers do have budgetary maneuvers at their disposal. They could transfer money between accounts to close the budget gap and could dip into the state's more than $700 million rainy day fund. Last week, a proposal emerged to tap an unused $366 million tax reserve fund kept by the Maryland comptroller's office.

A federal economic stimulus package that includes state aid also could ease the problem. Congressional leaders are working on a proposal for President-elect Barack Obama to sign after he takes office that might include money for Medicaid and infrastructure projects - and could shave several hundred million dollars from Maryland's shortfall.

Nonetheless, steep budget cuts in some areas of the state's budget will be unavoidable.

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