As revenues slip, O'Malley says fresh cuts may be needed

March 11, 2009|By Laura Smitherman | Laura Smitherman,laura.smitherman@baltsun.com

Gov. Martin O'Malley warned yesterday of a fresh round of budget cuts to account for tumbling state revenue forecasts that are far lower than just three months ago, leaving a roughly $515 million shortfall next year.

In an interview, the Democratic governor said a tax revenue estimate set for release today is "in essence sending us back to the drawing board" to craft a balanced budget.

O'Malley said "it is my hope" to avoid state worker layoffs, and pledged to "do my best to defend" a continued tuition freeze at public universities. But he acknowledged he may revisit those and other budget decisions announced last month amid optimism from the passage of the federal stimulus plan.

"We have to look at ways to close a half-billion dollar gap, so we'll have to go back and look at a lot of things," O'Malley said, adding that he had learned how dire the situation had become only 24 hours earlier. "I wish I could share with you exactly how we're going to close this."

With the economy declining rapidly, O'Malley and the General Assembly are trying to balance the state's $14 billion general budget with a moving target for how much they can spend. Last month, O'Malley said many deep cuts he had feared would be averted with billions of dollars of new federal aid.

O'Malley said then that the federal money would enable him to take budget cuts for public education from kindergarten through high school off the table. Those proposed cutbacks had drawn sharp objections from Baltimore schools chief Andres Alonso, and yesterday the governor pledged to maintain his commitment to public education.

"That investment is critically important to our ability to come out of this recession before other states, and it's going to mean we have a quicker rebound than other states," O'Malley said.

The state Board of Revenue Estimates is expected to announce today that tax and other revenue collections have plunged $1.1 billion for this budget year and next.

That revenue write-down is far larger than the $600 million over two years that the governor had previously anticipated in his spending plans.

The remaining shortfall of about $515 million must be filled mainly through spending reductions or other means. O'Malley, in his proposed budget for the same fiscal year, had already closed a $2 billion budget gap.

The state's shifting financial standing has prompted lawmakers to delay action on the budget, said House Appropriations Chairman Norman Conway. "We have postponed our decisions because we need to see the revenue estimates," he said.

Legislative leaders, meanwhile, were girding for a budgetary morass.

"We're going to have to do some pretty dramatic things in terms of looking at the budget," Senate President Thomas V. Mike Miller said. "We are in a world recession that's ongoing, and we're just going to have to continue dealing with it as best we can."

Both Miller and House Speaker Michael E. Bush cast doubt on resurrecting a proposal previously floated by O'Malley to lay off 700 state workers for a savings of about $30 million. "None of us are going to consider layoffs," Busch said yesterday. "Job No. 1 is to keep people in the workforce."

Miller has previously suggested that the state might not be able to afford O'Malley's proposal to extend a tuition freeze for a fourth year.

Other potential targets include aid to local governments and a proposal to cut salaries for all state employees by 1 percent. Legislative aides have suggested the pay cut could save $53 million, and O'Malley said yesterday the proposal may be part of discussions with legislative leaders.

"We need to be prepared to do a host of things; what we don't know yet is what we are prepared to do now," said Warren Deschenaux, the legislature's chief fiscal analyst.

Sen. Richard Madaleno, a Montgomery County Democrat and member of the Budget and Taxation Commitee, said lawmakers might look again at the across-the-board pay cut after news of the revenue forecast spread. "It's an idea worth considering because it is a way to share the pain as opposed to laying off a smaller group of people," he said.

Republicans, reacting to discussion of the pay cut at a hearing yesterday, noted that during O'Malley's tenure state employees have been forced to take furloughs and seen cost-of-living salary increases eliminated.

O'Malley, after instructing his aides to arrange a conference call to share the bad news about state revenues with the congressional delegation, said he got "definitive word" on the revenue projections after attending an event with Sen. Barbara Mikulski promoting the state's investment in community colleges and keeping tuition costs down.

"It would be nice to know when exactly this is going to reach the bottom, but none of us knows that and that's what makes this challenging," O'Malley said.

Baltimore Sun reporter Gadi Dechter contributed to this article.

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