Red ink to stain future for Md.

Budget work ends

gap of $1 billion-plus looms

April 13, 2009|By Laura Smitherman | Laura Smitherman,

Maryland lawmakers plan to wrap up work Monday on a $14 billion budget after months of agonizing over how to plug an enormous shortfall caused by deteriorating revenues and mandated spending growth.

But all that effort still won't put the state on solid, long-term financial footing.

Even with the influx of federal stimulus money, the General Assembly will reconvene in nine months facing a budget gap that analysts expect will reach more than $1 billion.

And, some would argue, it might be the worst possible time for Gov. Martin O'Malley and lawmakers to make unpopular cuts that could include layoffs or curtailing services.

After all, it will be an election year. The governor is expected to seek a second term, and all 188 General Assembly seats will be on the ballot.

"Next year is going to be enormously challenging, and that's an understatement," said Warren G. Deschenaux, the legislature's chief fiscal analyst, who has pointed out to lawmakers that the next budget they craft will take effect four months before they face re-election.

O'Malley, a Democrat, said in an interview that the fast-approaching election was not a factor in budget decisions, and he has blamed a national recession for "one big wave of red ink crashing over our bow."

Still, again this year, many of the most difficult decisions were delayed. While incorporating a raft of spending reductions, the state budget masks an underlying imbalance between revenues and expenses by relying on federal dollars and a series of transfers.

"There are some who say, 'Why don't you just get ahead of this?' " O'Malley said. "But if getting ahead of it means cutting into core services, if getting ahead of it means contributing to the economic woes by laying people off ... how do you do that?"

Some in Annapolis say the governor's strategy reflects his upbeat attitude about government.

"He's an optimist; he's hoping for the best," said Senate President Thomas V. Mike Miller, a Democrat representing Calvert and Prince George's counties. "He regards the state as being benevolent, as being a force of good that can assist people in times of need and help move the economy forward."

But others call the approach foolhardy.

"Much of what's being counted on is hope," said Sen. David R. Brinkley, a Frederick County Republican and longtime budget committee member. "They are just crossing their fingers that the economy gets better instead of dealing with the problem."

An economic recovery could reverse a precipitous decline in income and sales taxes, but budget forecasters predict that the economy will continue to slow over the next year.

In fact, the economy would have to rebound significantly - growing 5 percent next year and 10 percent the year after that - to erase impending shortfalls, Deschenaux said.

"I think we're all hoping that at some point things will stabilize," said Del. John L. Bohanan Jr., a St. Mary's County Democrat on the Appropriations Committee. "Regardless of a looming election, the No. 1 priority is to remain in balance and maintain our AAA bond rating."

Maryland is one of a handful of states that have received the top ranking from credit-rating agencies, which enables the state to obtain lower interest rates and therefore save taxpayers money.

The fiscal outlook only gets worse, according to current projections. After federal stimulus funds run out the year after next - a time that legislative analysts refer to as "the cliff" - the state budget shortfall is projected to be $1.8 billion.

That's more than the gap that prompted O'Malley to call a special legislative session in late 2007 to raise taxes by $1.3 billion and legalize slot-machine gambling to boost the state's coffers. Voters ratified the slots plan in November, but bidders sought licenses to operate only a portion of the machines authorized, meaning the program might not reach its financial goal.

Over the next several months, O'Malley could be in the position of taking more budget cuts to the Board of Public Works, which also includes Comptroller Peter Franchot and Treasurer Nancy K. Kopp. While lawmakers had originally envisioned leaving a cash balance of as much as $400 million for the budget year that begins July 1, they settled on a cushion one-fourth that size.

Then the legislature reconvenes in January, potentially facing another round of painful budget decisions after having pared spending for local government aid and other programs this year, and after state workers have been required to take furloughs.

O'Malley and Democratic leaders have insisted they would not pursue tax increases during the 2010 election year, and they might have little ability to tap into reserves after transferring hundreds of millions of dollars from those funds to keep the operating budget afloat this year. That leaves one chief option: more budget cuts.

"It does seem like every year we have this situation," said Sen. James E. DeGrange Sr., an Anne Arundel County Democrat on the Budget and Taxation Committee.

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