Gov. Martin O'Malley wants to balance next year's state budget by laying off 700 workers, slashing programs and relying on balance-sheet maneuvers.
Facing a $2 billion shortfall, O'Malley proposed yesterday that the state's operating budget shrink by 1.3 percent, to $14.4 billion, which is the first year-to-year decrease offered by a governor in decades.
With Congress debating a fiscal stimulus package, O'Malley also assumes that the state will receive $350 million in federal aid to help fill the gap in the budget year that begins in July.
While O'Malley got accolades from fellow Democrats for his fiscal stewardship in tough economic times, some uncertainties hang over his plans. The economy could decline further and force deeper budget cuts. Congress could fail to approve an aid package or pass a smaller one than he envisions. And the governor has not solved the structural imbalance between revenue and expenses, leaving an expected shortfall of $713 million to fix a year from now, according to state officials.
"I can't sugarcoat the difficulty of these times," O'Malley said. "This is our best effort at coming up with a painful array of cuts, spending reductions and level funding of worthy programs in order to close the gap."
He said he crafted the budget with an eye to preserving funding for education and programs that help needy families, especially as more are turning to state health care and unemployment services. He also protected programs that he has championed, including stem cell research that would get a $400,000 increase to $18.4 million and full $32 million funding of the land conservation Program Open Space.
Republicans contend that O'Malley has not done enough to rein in spending. When accounting for federal funds and other money, the state's overall budget grows more than 2 percent, to $31.6 billion.
"It tells me they're still not willing to make the tough decisions that need to be made," said House Minority Leader Anthony J. O'Donnell, a Southern Maryland Republican. "It just defers the problem; it doesn't really solve the problem."
The General Assembly, despite being dominated by Democrats, is likely to object to some of the budget- balancing moves chosen by the governor. The legislature must approve a budget, but it has the power only to cut the spending plan or shift funds, not to add money. Sen. Ulysses Currie, chairman of the Budget and Taxation Committee, raised the possibility yesterday of more budget cuts.
"Everyone is going to have to make sacrifices," said Currie, a Prince George's County Democrat. "I don't think we have yet seen the bottom in this recession."
Maryland, like dozens of states across the country, is confronting yawning deficits as the recession has cut into tax receipts. O'Malley not only unveiled his next budget yesterday but also revealed how he plans to close a $400 million shortfall that opened in the current fiscal year as the economy deteriorated.
To keep the operating budgets balanced for both years, O'Malley proposed $1.2 billion in budget reductions and $900 million in transfers between funds and reserve accounts. The Board of Public Works, a policymaking body made up of the governor, comptroller and treasurer, must approve the current-year cutbacks, which could happen as early as next week.
Layoffs from the work force of more than 70,000 state employees are expected to save $30 million. Budget Secretary T. Eloise Foster said her office has not identified which jobs would be targeted.
That proposal is likely to draw objections. Some lawmakers have questioned why the governor doesn't abolish more vacant positions; his budget envisions eliminating 1,000 vacancies but leaving others. And the American Federation of State, County and Municipal Employees has warned that layoffs stretch thin a work force that has shrunk almost 20 percent in the past decade, though union officials expressed gratitude that the governor decided against making workers pay more of their health care costs.
"Any time you're laying off state employees it's controversial," said Senate President Thomas V. Mike Miller. "If you have a job in state government and you took a job with lower pay for job security and your job is getting axed, it's a great cause for angst."
Powerful local government executives also are expected to raise concerns about some of the governor's proposals. Localities would see a $310 million reduction in aid, including a requirement that county governments pay the cost of assessing property for tax purposes.
The plan also would require counties to replenish over 10 years the cost to raid a $366 million local income tax reserve fund. In a trickle-down effect, that could lead to higher local taxes or cuts to services.
"The cuts being proposed for local government will be painful," said Howard County Executive Ken Ulman, a Democrat. But, he said: "Had it not been for the fact that the governor understands and appreciates the role of local governments, it would have been worse."
Anne Arundel County Executive John R. Leopold, a Republican, said that making the state responsible for assessments was "a proper policy decision" made years ago and that state funding should continue.
But Leopold and other local leaders praised the governor for rejecting the idea of shifting the cost of teacher pensions to local governments, which would have saved the state about $135 million.
Miller, who backed the idea of a shift, said its exclusion was a chief "failing" in the governor's budget. He held out the possibility of introducing legislation to accomplish it. House Speaker Michael E. Busch said the issue is worth long-term study.
With the state recently getting the top ranking among public school systems, the governor increased funding under a K-12 education formula by $68.3 million, to $5.4 billion. He also proposed spending $260 million for school construction as part of the capital budget, bringing the total investment in this area to about $1 billion in three years.
O'Malley extended for a fourth year a tuition freeze at state universities, which would take those institutions from among the most expensive in the nation to near the median, said William E. Kirwan, chancellor of the University System of Maryland.
The governor saved money by not including planned increases to a public school formula that directs more money to high-cost jurisdictions such as Baltimore, and community colleges would see a $50 million reduction in funding. But Nancy S. Grasmick, the state superintendent of schools, who has clashed with O'Malley in the past, said yesterday that the budget proposal was "reasonable, given the seriousness of the situation."
Some environmental programs fared well. O'Malley's proposal directs $25 million to the Chesapeake Bay fund, which surprised environmentalists who had expected that the new pollution-fighting program would be cut. However, the governor did not meet the demands of health care advocates, who wanted him to continue an expansion of Medicaid eligibility that was passed by the General Assembly two years ago.
Baltimore Sun reporters Larry Carson, Tyeesha Dixon and Gadi Dechter contributed to this article.
Gov. Martin O'Malley proposed about $1 billion in spending reductions to balance the budget for the fiscal year that begins in July, including:
* $88 million - Defer increase to an education funding formula
* $81 million -- Freeze rates paid to physicians under Medicaid and other programs
* $50 million - Cut funding for community colleges
* $30 million - Lay off 700 state workers
* $11 million - Reduce aid for local libraries and jails