O'Malley planning more ways to close budget gap

Taxes from BGE deal, job cuts, layoffs, fund transfers part of deal

November 18, 2009|By Laura Smitherman | laura.smitherman@baltsun.com

Gov. Martin O'Malley plans to rely on tax revenue from Constellation Energy Group's deal with a French utility plus state agency cutbacks, dozens of employee layoffs and fund transfers to close the latest budget gap that has opened as the recession lingers.

O'Malley will outline a package of more than $350 million in budget-balancing measures at the state Board of Public Works today. The three-member board is composed of the governor, Treasurer Nancy K. Kopp and Comptroller Peter Franchot.

This marks the third time that O'Malley, a Democrat, has been forced to make midyear revisions in the $13 billion spending plan that took effect in July. By law, the budget must remain balanced.

Midyear cuts have gotten so deep that some are raising concerns that the governor is breaching a cap on the amount of money that can be taken back once appropriated.

In general, state law prohibits cuts above 25 percent of the budgeted amount; administration officials have told those affected that they are relying on guidance from the state attorney general's office for justification of their decisions.

While O'Malley didn't outline budget cuts in advance, as he has done in previous rounds, some details emerged from those briefed on the proposals.

About 120 state positions would be abolished under the plan, including about 70 that are currently filled. Health care programs would be cut, as they have been in the past. And grants that support financial aid for students at private colleges and universities would be reduced.

Funds would be transferred to the operating budget from other accounts with balances, such as the Maryland Injured Workers' Insurance Fund, the state's worker compensation agency.

"It's a little bit from everybody; the cuts are spread across the board," said Senate President Thomas V. Mike Miller. "And it's a harbinger of things to come."

Maryland has been caught in a revenue downdraft in recent years, as the recession made a major dent in tax receipts. According to a report from the comptroller's office this week, revenue collections so far this year are 7 percent lower than a year ago.

"Performance is generally in line with expectations, which remain very low," Franchot wrote.

The state is expected to garner about $130 million in corporate taxes from the closing of Constellation's $4.5 billion deal to sell half its nuclear power business to Electricite de France. That revenue had not been accounted for amid uncertainty over whether the transaction would be cleared by state regulators.

The Public Service Commission approved the transaction with conditions last month, and O'Malley incorporates the tax influx in his budget-balancing plan.

O'Malley also plans to propose carving $9 million from grants to private colleges and universities, on top of nearly $7 million in previous rounds. Some of the aid reduction would be offset by additional stimulus funding under the federal Pell Grant program, according to the administration.

The money is primarily used for need-based financial aid to Maryland residents, said Tina Bjarekull, president of the Maryland Independent College and University Association. And the reduction comes as more students are facing financial hardships and requesting additional aid.

"We have all these students coming in saying, 'We need more; we need more,' and at the same time we're getting this cut," she said. "It's very hard on campuses."

Bjarekull said she objected to the level of cuts, which so far this year add up to more than 30 percent of the $52 million in grants appropriated by the General Assembly for this year. She contends that exceeds the 25 percent cap on midyear reductions.

Michael Sanderson, executive director of the Maryland Association of Counties, said his organization also has been concerned about budget cuts exceeding the cap and plans to raise the issue in the legislative session that begins in January. Local aid to counties was slashed by more than $200 million in an earlier round.

Another controversial budget cut, which will be reconsidered today, is the closure of the Upper Shore Community Mental Health Center in Chestertown. Lawmakers and union officials have criticized the proposal, and the health department agreed to take a second look.

Next year, O'Malley must close another gap of $2 billion. And Republicans including Del. Anthony J. O'Donnell, the House minority leader, have criticized the governor's one-time cuts, fund transfers and other "short-term gimmicks."

But some lawmakers defend O'Malley's proposals, saying his options are limited because he can't cut mandatory spending on education and other programs after the fiscal year has begun.

And some are hoping what has been a steady decline in revenue will soon come to an end. A report from the state's Bureau of Revenue Estimates in December is expected to be a key indicator.

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