Deep cuts in O'Malley's budget loom

The Baltimore Sun

Worried that a faltering economy could cause a worse-than-expected slowdown in the state's finances, Maryland lawmakers are exploring deep cuts in Gov. Martin O'Malley's proposals to bolster spending on the environment, health care and other programs.

Lawmakers have been looking for $200 million in cuts in O'Malley's proposed budget to compensate for the flagging economy, but now they are saying that could rise to $300 million or more when updated revenue projections come out next week.

O'Malley met with state senators yesterday to discuss "contingency cuts" in case revenues dip sharply.

Three months ago, O'Malley called the General Assembly into a special session to close the state's structural deficit with $2 billion in tax increases and spending reductions, and a proposal to legalize slot machines that is subject to ratification by voters.

"The likelihood is, given the national economic downturn, that those difficult series of decisions will continue," O'Malley said. "Everybody is looking at the revenue estimates, and if they are coming in lower than projected, there will have to be further cuts."

States across the country are struggling with a moribund housing market and slower consumer spending, both of which can hurt tax receipts. Virginia has been grappling with balancing its budget in the midst of an economic slowdown. Gov. Tim Kaine recently announced possible layoffs and agency cuts to cover an unexpected budget shortfall.

Maryland lawmakers must decide in coming weeks how big a cushion they want to build into the state's fiscal plan in case the economy weakens further. They are working on the budget for the fiscal year that will begin in July, but the legislative session ends in early April.

"We need to make difficult decisions now so that we don't face another round of budget cuts in a couple of months so that we don't have another special session in the fall," said Sen. Richard S. Madaleno, a Montgomery County Democrat who is a member of the Senate Budget and Taxation Committee.

During the recession in the early 1990s the state repeatedly readjusted its spending plans to accommodate revenue shortfalls. Lawmakers are required by the Maryland Constitution to balance the budget. The legislature held four special sessions in 1991 and 1992.

Senate President Thomas V. Mike Miller said he urged O'Malley to outline new spending initiatives that he wants to protect and warned him that it might be difficult to raise spending on favored programs while lawmakers are making budget cuts.

"There are areas that you need to make certain to retain, to be able to move forward on," Miller said, relaying a conversation with O'Malley. "But there are other areas that quite frankly are going to have to be ratcheted down."

Lawmakers and legislative analysts have scoured the budget for possible cuts. One list of proposed reductions has been dubbed the "doomsday" budget.

Bigger savings could be achieved by delaying funding for a new Chesapeake Bay fund to which lawmakers plan to allocate $50 million a year for cleanup efforts, or by modifying a plan to expand eligibility for Medicaid, the government insurance program for the poor. Both proposals were approved during the special session.

At the same time, the legislature approved $1.3 billion in tax increases that included the sales, tobacco and corporate income levies. The slots proposal, which goes before voters in a November referendum, could raise an additional $600 million if approved.

The legislature also directed the governor to find $500 million in budget cuts, which he identified in his budget proposal last month.

In the wake of those decisions, neither the governor nor leaders in the legislature are suggesting more tax increases.

Sen. J. Lowell Stoltzfus, an Eastern Shore Republican who sits on the budget committee, called initiatives championed by O'Malley that call for increased spending "foolishness to the extreme."

"The governor is in a heck of a jam," he said.

Sen. Ulysses Currie, a Prince George's County Democrat who is chairman of the budget committee, said lawmakers might consider an across-the-board cut for state agencies if revenues are lower than expected. "Everything is on the table, and nothing is off the table," he said.

Comptroller Peter Franchot has warned of a gloomy financial outlook for the state. In a letter to legislative leaders this month, he wrote that though Maryland has had no large-scale job losses, consumers and businesses have restrained spending "substantially."

Franchot cautioned against holding a special session last year, saying there was no immediate fiscal crisis and that unintended consequences could stem from acting in haste to plug a projected budget gap.

So far in fiscal 2008, corporate income taxes are nearly 24 percent lower than at the corresponding time the year before, according to the letter. Though such tax receipts are volatile, they are lagging "well behind" expectations, Franchot wrote.

General-fund sales tax receipts were 5.5 percent lower in January than in the corresponding period a year ago, reflecting slow December sales. Franchot called that figure "surprisingly weak."

Franchot's office helps to compile the revenue estimates, but he declined through a spokesman to discuss them before their release. The estimates could show lower-than-expected revenues for this fiscal year and next.

"The odds are increasing that we're going to have more problems than we have now," said Del. Murray D. Levy, a Charles County Democrat who is a member of the House Appropriations Committee. "It's safe to say there are a lot of blinking caution lights."

laura.smitherman@baltsun.com

Sun reporter Timothy B. Wheeler contributed to this article.

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