Worst-case scenario

Our view : The O'Malley budget plan has bad news for most everyone - as well as evidence of why states like Maryland require a little economic stimulus, too

January 22, 2009

Despite his best attempts at post-Obama-inaugural cheeriness, Gov. Martin O'Malley yesterday revealed a spending plan for next year that offered more cause for tears than celebration. It's not easy to put a happy face on 700 layoffs (not the unlikely-to-happen variety but the sort where actual people end up in the unemployment line) and the various other misfortunes contained in his budget.

For the first time in modern history, the state budget may shrink in real terms. The governor's proposed $14.4 billion general fund budget is slightly smaller than this year's. That is clearly warranted given the nation's economic reality, but it makes it no more pleasant for those who work for the state or rely on government services.

Will such austerity and diminished state services be felt on Main Street? Mr. O'Malley told reporters he hoped that wouldn't be the case but recognized it probably would. For starters, it means at least $310 million in cuts to local governments, which, in turn, will have to take their own austerity measures.

We would quibble with some of the governor's choices in how best to close a potential $2 billion shortfall in fiscal 2010. He leaves untouched a teacher pension funding formula that favors the wealthiest counties and continues the politically popular freeze on in-state tuition at Maryland's four-year colleges when fast-growing community colleges likely need the money more.

But on the most critical issues - preserving the recent advances Maryland has made in K-12 schools, adequately financing health care for the poor, and maintaining Program Open Space and other key environmental initiatives - Mr. O'Malley is right on target. His choice not to seek any new taxes is also the correct call in the midst of such a shaky economy.

The proposal relies on some creative financing techniques that also give one pause. These include spending money customarily set aside for income tax refunds. That's a decision with potential ramifications for the state's bond rating and ought to be fully vetted.

Nevertheless, there is hope. The vast majority of states are grappling with proportionately worse budget shortfalls, and President Barack Obama is pushing Congress to approve a stimulus plan that in addition to building roads, bridges and schools would provide direct aid to states.

Mr. O'Malley's budget assumes Maryland would receive $350 million from Washington next year, but it might well be more. Such federal largesse now seems the best chance of avoiding layoffs - job retention being just as helpful as job creation - and providing impetus for an eventual economic rebound as well.

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