O'Malley to slow spending

Gov. Martin O'Malley announced plans yesterday to freeze tuition at colleges and universities and nearly double funding for stem cell research, releasing an inaugural budget that would slow state spending growth but do little to prevent billions in shortfalls expected later in his term.

Just one day after taking the oath of office, O'Malley presented his $30 billion plan for state spending, which relies on nearly $1 billion from the state's "rainy day" reserve account that had been boosted by former Gov. Robert L. Ehrlich Jr. - but includes no tax increases. The governor declared the budget fiscally responsible and a reflection of the values he campaigned on last year.


He said, however, that his desire to fund campaign promises - such as a program to aid school districts where education is more expensive - was hampered by projections of expenses outpacing revenues by a combined $3.2 billion in the next three years.

"We can't accomplish everything we want to in a single budget year, but I do believe in this budget, even with the constraints we face, we are making progress," O'Malley said. "We know we are facing a budget challenge that grows in future years, that scary structural deficit. The first task when you face a hole like that is not to make it deeper."


The budget for the fiscal year that begins July 1 would freeze tuition at University System of Maryland campuses and Morgan State University by providing the system with an additional $200 million. It would fulfill O'Malley's campaign promise of $400 million in school construction spending, increase aid to K-12 education by $683 million and add money for environmental and public safety initiatives.

O'Malley is relying on a large infusion of money from the state's rainy day fund to balance the books. With tax revenues high from a formerly hot real estate market, Ehrlich left the fund with an excess of cash built up over the past two years.

As expected, the cushion simplified O'Malley's task. The new governor used $967 million in rainy day funds, leaving $674 million, the minimum amount that bond rating agencies suggest the state keep to maintain its AAA bond rating.

Legislators will spend the next three months looking to trim O'Malley's proposal. Under state law, lawmakers cannot add to the governor's budget without finding sources for the spending.

Lawmakers said they were generally pleased the governor sought to slow spending growth, though some of the Assembly's fiscal watchdogs said he would be wise to begin a solution for the state's long-term structural deficit now. Next year - the budget year that begins July 1, 2008 - spending is expected to exceed revenues by $1.3 billion or more.

"This budget recognizes the fiscal constraints we've got right now, but it doesn't deal with the long-term future," said Sen. Patrick J. Hogan, a Montgomery County Democrat who is vice chairman of the Senate Budget and Taxation Committee.

The governor trumpeted the restraint of a 2.5 percent increase in the total state budget compared with last year's, a figure that is accurate but somewhat misleading. In his final budget, Ehrlich included $718 million that he planned to save for the next year rather than spend. When actual year-to-year spending is compared, the increase in overall state spending is about 5.5 percent.

Still, O'Malley's plan calls for a smaller spending increase than Ehrlich proposed last year. O'Malley's proposal calls for an increase of 7.6 percent in the part of state spending that is directly funded by Maryland taxpayers. (About half of the budget comes from the federal government and other sources.) Last year, Ehrlich submitted a budget in which that category of spending grew by more than 10 percent.


O'Malley's proposed increase is smaller than the 7.9 percent recommended by a legislative committee that endorses a limit tied to overall economic growth.

The governor said he recognizes the long-term problems but said he wants time to make his mark on state government before he seeks a solution.

The timing of the transition from one governor to the next makes the first budget of a new term a tricky exercise. The state Constitution required O'Malley to be sworn in Wednesday and also required that he submit a budget plan by today. Lt. Gov. Anthony G. Brown joked about the awkward timing at the beginning of a news conference yesterday. "Now that we've been in office for 24 hours, we have our first budget," Brown said. "See what you can do with hard work and determination in a short period of time?"

O'Malley said he believes the state can save money by cutting down on overtime, absenteeism, redundancy and other waste. He said that he doesn't know whether that will be enough to eliminate the budget shortfall, but that he will exhaust that avenue before exploring others - such as tax increases.

Senate President Thomas V. Mike Miller said O'Malley's plan is solid but said the governor should not wait to seek long-term budget solutions. Miller said the governor should be using his political capital to pursue new revenue sources. "If he comes in next year and says we want this big tax increase, it's not going to happen," said Miller, who wants the state to legalize slot machines and tax them.

Sen. David R. Brinkley, the minority leader from Frederick County, said that O'Malley benefited greatly from Ehrlich's surpluses, but that he worries about how Democrats will handle the long-term deficits. "They're going to have to consider tax increases," said Brinkley, who sits on the Budget and Taxation Committee. "We still think part of the equation is a serious evaluation of state programs. We're not going to tax our way into prosperity."


To fund his priorities this year, O'Malley has delayed implementing some of his promises, including a $100 million component of a landmark education reform program that compensates jurisdictions where the cost of education is high. He said he will fund it next year.

O'Malley also delayed a $53 million repayment to the Transportation Trust Fund for the Inter-County Connector in Montgomery County. He said he remains committed to the project.

STATE Budget highlights

Some agencies get more money in the fiscal 2008 budget - Gov. O'Malley's first - and others get less.



UP --

FY '07 $5.8 billion

FY '08 $6.4 billion

Includes last installment of the Thornton Plan, but not an extra $100 million for expensive jurisdictions.




FY '07 $4 billion

FY '08 $4.2 billion

Increase allows for a public university tuition freeze.



FY '07 $506.5 million


FY '08 $429.6 million

Budget uses all transfer tax funds for land preservation, but declining real estate market means less for program.