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.
