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O'Malley to close $400 million budget shortfall

Gov. Martin O'Malley is poised to make budget cuts and take other steps to eliminate this year's revenue shortfall of more than $400 million before Gov.-elect Larry Hogan takes over, the administration said Tuesday.

O'Malley, who leaves office Jan. 21, will use his last opportunity to address Maryland's immediate budget woes by taking $211 million in cuts to the Board of Public Works, which is expected to approve them. The board's meeting Wednesday is the final one of the governor's term.

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Ron Boehmer, a spokesman for the governor, said the remaining $200 million of the shortfall would be addressed through fund transfers, position eliminations and other actions O'Malley will propose to the General Assembly when it convenes next week.

Combined, the actions will leave the state with a minuscule $5.5 million cushion in this year's general fund budget of about $16 billion. Hogan will still need to deal with a projected $750 million shortfall in next year's budget.

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"While these actions are the result of difficult choices, we are acting now to ensure the overall fiscal health of Maryland," Boehmer said. He noted that this is the ninth time O'Malley has asked the Board of Public Works to approve midyear cuts to balance the budget.

When the dismal revenue projections were announced last year, O'Malley was noncommittal on whether he would propose cuts before leaving office. Total state spending, including federal and other revenues, comes to about $40 billion a year.

Boehmer said the governor is proposing no layoffs but will call for voluntary retirement incentives and elimination of vacant positions — proposals that are expected to save $37.5 million.

Officials of Hogan's transition team did not return messages seeking comment for this article. The Republican has been sharply critical of state spending during the eight years of O'Malley's Democratic administration.

The Board of Public Works is made up of the governor, the state comptroller and the state treasurer. Comptroller Peter Franchot said Tuesday that he had not been fully briefed on O'Malley's proposed cuts but understood they were coming.

"I think it's an example of good fiscal management," he said. Franchot had urged O'Malley to act before leaving office.

Treasurer Nancy K. Kopp, welcomed O'Malley's decision to act.

"I do think it's appropriate to do what you can to close out the year without a deficit," she said. "It probably is the right thing to do."

Kopp said O'Malley is correct to act now because the cuts become more difficult the deeper the state goes into the fiscal year. The Hogan administration will still have to deal with the shortfall in the budget year that starts July 1, she said, but it makes sense to leave him with as clean a slate as possible.

Kopp said that while she did not have exact numbers, she expects the cuts to take the form of a 1 percent to 2 percent across-the-board reduction at most state agencies, with a few exceptions. Some areas, such as higher education, might see deeper cuts, Kopp said, but she added that she doesn't expect much impact on K-12 education.

Medicaid providers might see some cuts in reimbursement, Kopp said, but noting that that would sacrifice federal matching funds. Boehmer confirmed that O'Malley's plan includes $103 million in transfers from special funds, which would require legislative approval — and could be opposed by Hogan.

During the campaign, Hogan spoke out against the use of fund transfers to close budget gaps. Kopp said most of the transfers O'Malley will propose come from funds that won't be needed in the current budget year.

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