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Analysts take grim view of 'fiscal cliff'

Budgets and BudgetingNational GovernmentBarack ObamaGovernment DebtGeorge W. BushMichael E. Busch

General Assembly analysts released estimates Wednesday painting a much grimmer picture of the impact of a continued federal budget impasse than the O'Malley administration did less than a month ago.

In a presentation to legislature's fiscal committees, The Department of Legislative Services warned that if the scenario known as going over the "fiscal cliff" plays out, Maryland could lose 53,500 jobs during the budget year ending June 30 and 60,200 more next year.

Last month, the state Department of Budget and Management projected that the toll from the combination of severe budget cuts and expiring tax breaks at the federal level could cut 12,600 jobs in Maryland.

The legislative estimate also took a more pessimistic view of the impact of those cuts on the state budget. Where the budget department put the expected loss in state revenues at $200 million, the legislative analysts forecast a loss of $268 million in the current fiscal year and $635 million the following year.

The lawmakers briefed Wednesday expressed concern that the federal problems could throw the state's plans into reverse at a time when the state economy seems to be improving and Maryland is coming tantalizingly close to closing a long-term revenue shortfall.

"It's sort of like an albatross hanging over us," said Baltimore County Del. Adrienne Jones, speaker pro tem and a leading member of House Speaker Michael E. Busch's Democratic leadership team.

But T. Eloise Foster, the state budget secretary, said the more dire figures are "just projections." She said her department neither rejects nor accepts the analysts' numbers and will take a fresh look at the potential impact.

The "fiscal cliff" would be reached if Congress and the president can't strike a deal by Jan. 1 to avert a series of budget cuts put in place by lawmakers and the Obama administration last year to resolve a standoff over the nation's debt ceiling that threatened to put the nation into default. Through a process known as "sequestration," automatic reductions would take effect — cutting both military and domestic spending. No talks are expected before Election Day.

Economists have predicted that the sudden cut in federal spending — combined with the end of tax cuts put into place by Presidents George W. Bush and Barack Obama — would send the national economy into a new tailspin.

Because of its heavy dependence on federal government and military contracting, Maryland would be especially hard-hit.

"The Maryland economy would go into a recession," analyst Theresa Tuszynski told lawmakers.

The ominous news comes even as Maryland is seeing some hope on its own budget issues.

The revenue shortfall known as the "structural deficit" – once close to $2 billion – has been narrowed to $638 million, according to analysts.

Without the fiscal cliff, that would put Maryland within range of eliminating its structural deficit within a year or two, said chief policy analyst Warren Deschenaux.

"We're getting so darn close to being balanced that I can almost smell it, and it smells good," he said.

Legislators had previously expressed a determination to close the gap during next year's Assembly session, but analysts' figures showed that could require them to hold the state's spending increase — now projected at 4 percent — to 1.3 percent.

Sen. Edward J. Kasemeyer, chairman of the Budget and Taxation Committee, said lawmakers might have to stretch the cuts over two years. However he all but ruled out a repeat of this year's fight to increase taxes.

"I don't see it happening," said Kasemeyer, a Howard County Democrat.

But Sen. David Brinkley, a Frederick County Republican, said he still hopes to see the structural deficit eliminated next year.

"Let's get it done," he said.

Michael.dresser@baltsun.com

Copyright © 2014, The Baltimore Sun
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Budgets and BudgetingNational GovernmentBarack ObamaGovernment DebtGeorge W. BushMichael E. Busch
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