More budget blues

Our view : Remember when stimulus money was going to set states right? As Maryland's governor now knows, the recession is rewriting the script

March 16, 2009

Last Monday, Gov. Martin O'Malley promised millions of dollars of new aid for Maryland's community colleges. Two days later, he looked like an Economics 100 dropout when the latest revenue estimates for this year and next revealed a potential $1.16 billion hole in the state budget.

Attention, community college presidents: Don't spend that promised 5 percent increase in state aid quite yet.

Just when the governor seems to think he has the recession - and the falling tax revenue - in hand, another trap door opens up. It's a familiar ambush: During William Donald Schaefer's second term in the early 1990s, the bean-counters were repeatedly proved wrong - much to the governor's embarrassment as he had to close deficits every few months, and the constant turmoil sank his voter approval ratings.

If Mr. O'Malley didn't realize that the federal stimulus package is no panacea for states, he surely knows it now. Note to governor's advisers: If you're not listening to Comptroller Peter Franchot, at least stay attuned to what your budget experts must surely have known.

What happened to the $3.8 billion from Washington? Much of it couldn't be used for budget balancing and went directly to build roads, pay for schools or provide health care for the poor. Some was already assumed to be there back when the governor's budget was submitted in January.

But that looked to be enough a few weeks ago. What has changed since the end of last year is the expectation that things are not simply staying bad but getting worse. Projected drops in sales and income taxes, the latter fueled by what is now expected to be a 30 percent loss in revenue from capital gains (which in Maryland is taxed as personal income), are mostly to blame.

In the next few days, Mr. O'Malley is expected to offer a plan for fixing what amounts to two deficits, a $445 million shortfall in the current fiscal year and another $716 million in fiscal 2010. He and the General Assembly don't have much time to do their trimming, either; the annual deadline for passing a balanced budget is a mere 2 1/2 weeks away.

There are likely to be myriad strategies, from capturing unspent fund balances to collecting a $30 million overpayment to schools in fiscal 2009. But the bottom line is that much of the budget ax will fall on local government - there are simply too few viable alternatives.

County executives surely will howl, but as Senate President Thomas V. Mike Miller likes to point out, a lot of county seats haven't felt the pain yet. While state government has been furloughing employees, most counties gave workers cost-of-living and step increases this year and last. In the meantime, Mr. O'Malley would be wise to stop making promises. Maryland's economy may not be as bad as much of the country's, but there's no guarantee that the final trap door has sprung.

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