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Maryland's budget shortfall grows to $1.2 billion

Erin Cox
Contact ReporterThe Baltimore Sun
Maryland's budget shortfall is larger than previously thought

Maryland's budget hole has deepened.

The financial problem Maryland's incoming governor already described as "a crisis" worsened Monday, as officials announced the state's budget shortfall is even larger than previously thought.

Over the next 18 months, state revenue is expected to fall nearly $1.2 billion short of Maryland's expenses. The new numbers suggest the state must trim more than $420 million before the fiscal year ends in June, and an additional nearly $750 million out of the first budget Gov.-elect Larry Hogan will submit next year.

A spokesman said that Democratic Gov. Martin O'Malley does not have plans to formally cut the state's current budget during December, and that the governor is "still evaluating what additional action might make sense."

Hogan, a Republican who takes office Jan. 21, said Monday's new numbers were "no surprise." He cautioned residents to prepare for what may be painful budget cuts next year.

"I ask that Marylanders understand that these latest downward numbers mean the upcoming budget choices will be even harder and more difficult than expected," he said in a statement. Hogan was elected on a platform of curbing state spending.

Most of the budget woes announced by the Board of Revenue Estimates stem from Maryland's job market's improving more slowly than officials predicted when they put together projections a year ago. Although Maryland's revenue continues to increase year over year, it is not growing fast enough to keep up with spending plans.

Officials blamed gridlock on Capitol Hill and the reverberating effects of last year's sequester as the prime culprits suppressing Maryland's recovery.

Comptroller Peter A. Franchot said it was time to end the state's reliance on federal jobs — which employ about 300,000 people in Maryland — and federal contracts to buoy the state's economy.

"Rather than building a diversified state economy, we've effectively put all of our eggs in one federal basket, and we're seeing the immediate and direct economic impact of that approach," said Franchot, a Democrat. "We need to accept that this has become our new normal, and it requires a new economic model."

Treasurer Nancy K. Kopp, a Democrat and like Franchot a member of the revenue board, also faulted the economic uncertainty caused by Congress.

But Kopp cautioned not to be too pessimistic about the revenue shortfall, pointing out the state reduces its projections every year. Kopp noted that Maryland will take in more cash this year than last, and even more in 2015, signs that the economy continues to improve.

"It is a heck of a lot better than it was only a few years ago," she said.

Some of the budget problem stems from higher-than-expected spending, in part from swelling Medicaid caseloads and overtime costs at Maryland prisons, said Warren Deschenaux, director of the office of policy analysis for the Department of Legislative Services.

Deschenaux said closing the budget gap, as Maryland is required to do by law, becomes more complicated if officials want to do that only by cutting programs. About 80 percent of Maryland's spending is required by law, and the remaining 20 percent isn't enough to cover the shortfall, Deschenaux said.

"The more solutions you take off the table, the bigger the problem becomes," he said.

Officials announced in November the state faced a $300 million shortfall for this year, and another $600 million next year. On Monday, the Board of Revenue Estimates said state coffers would be short an additional $123 million this year and $147.9 million next year.

State universities have already called for a hiring freeze to help stem costs. State Budget Secretary T. Eloise Foster called on state agencies in November to trim expenses. On Monday, Foster she said that she did not yet know how much had been saved.

Franchot called on O'Malley to seek cuts to the current budget at the Jan. 7 meeting of the Board of Public Works, which has the authority to approve such reductions. Foster declined to comment.

Hogan's chief lobbyist, Republican Sen. Joe Getty of Carroll County, said fixing the hole in this year's budget is a greater challenge than crafting a leaner spending plan for next year.

"Every day that ticks by, the agencies spend money that we can't get back," Getty said. "When [Hogan] takes office, there will only be five months left."

Hogan's approach to trimming state spending is likely to hit objections from Maryland's Democratic-controlled legislature, which has closed deep budget holes in previous years while still spending record amounts on education.

Sen. Roger Manno, a Democrat who will lead the Spending Affordability Committee next year, said the problem should be seen in context. "It could be a lot worse," Manno said, noting that Virginia has a $2.4 billion budget shortfall.

Manno said that for the past eight years, the revenue estimates have consistently been revised downward. And every year, he said, the governor and the General Assembly found a way to pass balanced budgets that preserved core services Maryland residents demand.

"We've done this every year," Manno said. "We're accustomed to it."

ecox@baltsun.com

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