As if Maryland's budget troubles weren't bad enough, Congressional inaction is blowing a new $389 billion hole in the state's spending plan for the fiscal year that starts Thursday. Maryland was counting on the federal government to continue supplemental Medicaid payments enacted as part of the stimulus program for six more months, but amid mounting concern over budget deficits in Congress, the House of Representatives failed to appropriate the funds, and efforts to revive them in the Senate have been defeated by Republican filibuster threats. Democratic leaders are vowing to try to revive the issue after the 4th of July recess, but the way things are going, that's no sure bet.

Gov. Martin O'Malley faced significant criticism from some legislators, fiscal analysts and this newspaper for balancing his budget for the new fiscal year in part by including a placeholder in anticipation of the federal aid. Even in January, when Mr. O'Malley submitted his spending proposal, it was becoming clear that Congressional gridlock put these supplemental funds at risk.

In fairness, Maryland was hardly alone in making this mistake. Some 29 other states were also counting on the aid as part of the budgets they adopted this year, and many of them are on the hook for much more than Maryland. California is out $1.5 billion, and Illinois was expecting $700 million. And unlike the vast majority of its peers, Maryland does have a contingency plan. It is not without risks, but it is better than other states, which face the immediate prospect of layoffs, cuts to Medicaid services or more tax increases.

The governor and legislators recognized the possibility that the funds would not materialize and left an unallocated balance of about $200 million. And unlike in many other states, Maryland's revenues have actually started to come in higher than projections, if only slightly. If present trends continue, the state could have as much as $300 million in extra cash this year, which would allow it to absorb most of the missing Medicaid funds.

As for the remainder, the legislature authorized the administration to dip further into an obscure account used to collect income tax payments and apportion them to the counties. The account only pays out in any given year the counties' share of income tax receipts, but it collects money for current, future and previous tax years. It has traditionally been fully funded to cover current and future liabilities, but the state has started borrowing from it to cover other expenses, to the tune of about $700 million over the last two years. Effectively, the state is shifting from an accrual basis of accounting to a system of cash-basis accounting in which the fund just has enough to cover immediate needs.

In the long run, that's a bad idea. When bond analysts determine Maryland's credit rating, it consistently receives the highest possible marks because our tradition of strong fiscal management is enough to overcome uncertainty caused by a weak economy or other fiscal problems. By itself, taking more out of this reserve fund probably won't have any negative consequences, but when considered in light of more than a decade of balancing the budget through fund transfers and accounting gimmicks, it could open us up to the possibility of credit downgrades. For that reason, Comptroller Peter Franchot has argued against raiding the fund and in favor of making spending cuts instead.

Many states are being forced to make immediate cuts, but given where Maryland's finances stand, it can afford to take a wait-and-see approach. As bleak as things look in the Senate now, the failure to allocate the Medicaid funds is hurting as many Republican-leaning states as Democratic ones, so it's possible that a GOP filibuster can be overcome. And if the economy keeps picking up, it could lessen or eliminate the need to dip into the income tax reserve fund any further. Maryland shouldn't make a habit of raiding that particular piggy bank, and should keep its commitment to replenishing it, but leaving it available as a possibility in this case isn't the end of the world.