Despite more than $1.3 billion in tax increases and a slowdown in spending growth, Maryland needs to cut government expenditures further to avoid budget shortfalls and to guard against a possible recession, legislative analysts and lawmakers said yesterday.
Maryland's finances are in better shape than they have been in years, analysts said, pointing to the effects of the tax increases approved in November's special General Assembly session and proposals in Gov. Martin O'Malley's $20.6 billion operating budget to cut open space and road maintenance funding, eliminate vacant state positions and slow increases in education spending.
Although legislators in the session closed a projected $1.7 billion deficit for the coming fiscal year, a smaller gap between spending and revenue remains in the years ahead. And O'Malley's budget, which included net reductions of $509 million and one of the lowest spending increases of the past two decades, may not have been enough to finally solve Maryland's chronic budget woes, according to figures released yesterday by the nonpartisan Department of Legislative Services.
"We're doing better, but we're not cured," said Warren G. Deschenaux, the legislature's chief fiscal analyst, summing up a 90-minute presentation.
The gap between revenues and spending "is considerably narrower," he said, but closing it will continue to be "the unfinished business of this session and possibly the next and then the next."
The chairmen of committees in the House of Delegates and state Senate that deal with budgetary issues said additional cuts are likely.
"We'll have to maintain control of spending, and I think that's going to be the order of the day," said Del. Norman H. Conway, the Eastern Shore Democrat who chairs the House Appropriations Committee.
He declined to identify what areas in the budget his committee might target for cuts, saying he needed to first compare the governor's budget with about $550 million in spending reductions the Appropriations Committee recommended during the special session.
Conway said the state's wintry economic forecast means the legislature will have to be "extremely cautious" about spending this session, referring to the troubled housing and stock markets as two "red flags."
The General Assembly will need to be "vigilant" with the budget going ahead after a special session Busch described as "the most strenuous, demanding legislative undertaking that I've experienced in 22 years."
Busch said he expected the legislature to trim the budget, as it has done in the past, but he praised O'Malley for meeting a spending benchmark set by a bipartisan group of lawmakers assigned to keep state expenditures from exceeding economic growth.
But Republicans have criticized O'Malley for not doing more to control spending. While one commonly used measure shows that O'Malley's budget represents a 4 percent increase over last year, another measure that includes aid from the federal government shows the budget growing 6 percent.
GOP legislators also note that while O'Malley would eliminate 500 vacant state jobs, the state's work force actually grows by 400 new positions under his budget.
"It's a little bit less than full disclosure," said Del. Steve Schuh, an Anne Arundel County Republican who sits on the Appropriations Committee. "The structural deficit has not been resolved."
Deschenaux said O'Malley actually made more than the $550 million in cuts lawmakers had directed him to identify - exceeding that mark by $4 million - although that was offset by $45 million in new spending approved in the special session.
Much of the spending reductions came from state programs that turned out to be less costly than projected, particularly Medicaid, the health care program for the poor.
Under the governor's 2009 spending plan, ongoing spending would exceed ongoing revenue by about $331 million, a gap that would be covered by excess revenues from previous years. The O'Malley administration estimates the state will finish the fiscal year with a balance of $176 million.
"We're going to have gaps of roughly the same magnitude for a couple years, which means we're going to have to work hard to control spending," Deschenaux said.
The remaining shortfall between spending and revenue might be difficult to close if the economy takes a turn for the worse, as a growing cadre of economists have begun to predict.
Theresa Tuszynski, a policy analyst in legislative services, said the state's economy appears to be weakening.
She forecast slow growth through 2008, with employment increasing less than 1 percent. Jobless insurance claims began rising at the end of the year, she said. Those levels suggest a recession could be setting in, Tuszynski said.
However, the state's job growth at the end of the year was outpacing the nation's, providing a glimmer of hope, analysts said.
"On the one hand, the economy is growing. On the other, it's contracting," Deschenaux said. However, given the mixed economic picture, the chief policy analyst recommended that lawmakers consider "a cautious approach," suggesting a $176 million balance in the budget might not be a sufficient fiscal cushion against unforeseen economic jolts that could hammer tax collections or require higher spending.
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Sun reporter Gadi Dechter contributed to this article.