One-time fixes mark governor's plan to close $2 billion budget gap

Gov. Martin O'Malley plans to rely on a billion dollars in one-time accounting maneuvers to help balance next year's $13 billion state operating budget, avoiding deep cuts to services in an election year.

The strategy drew immediate concern from critics, particularly Republicans, who say the Democratic governor is deferring tough decisions.

O'Malley presented a broad outline Tuesday of how he plans to fill a $2 billion gap between revenues and expenditures in the spending plan he is required to submit to the General Assembly today.

He proposes steep cuts to to hospitals, and wants to continue this year's plan which forced state workers to take up to 10 days off without pay. Counties would receive the same reduced amounts of local aid and highway money they got this year.

"I do not relish this," O'Malley said of his proposal. "There is nothing about this I enjoy."

But the most notable part of the governor's proposal, lawmakers and other experts say, is its reliance on one-shot transfers to move more money into accounts that can be spent on on-going services.

The governor wants to dip into a little-known reserve account that accrues the counties' share of income taxes before they are dispersed, taking $350 million from the fund. He wants to take $442 million intended for capital projects, and use it on state operations instead. The shift would mean that some construction is deferred and that the state has to borrow more than originally anticipated for projects that go forward.

O'Malley is also banking on Congress approving a new package of emergency assistance to states grappling with the worst economic downturn since the Depression. The governor allocates $389 million he believes the state would receive from that program if it materializes.

Senate and House Republican leaders criticized the plans, saying the governor used "tricks" and "gimmicks" to paper over a gaping hole that will only loom larger next year. They warned that tax hikes could be coming after the election. "A lot of one-time fund transfers does not contribute to solving the on-going problem," said House minority leader Anthony O'Donnell. He said the governor is, in essence, relying on bonds to pay for on-going services. "You are not balancing [the budget], you are borrowing money. That is a bad concept."

O'Malley used similar strategies in preparing the current budget, which runs through June, said Warren G. Deschenaux, the legislature's chief fiscal analyst, who was philosophical about the governor's plan.

"Is it better to cut if you have alternatives? Or is it better to keep things going until you don't have alternatives?" he asked. "That is the debate that the General Assembly will be having."

Republican leaders said O'Malley should reject any new round of largesse from Washington, which Senate Minority Leader Allan Kittleman of Howard County called "federal welfare payments."

Democratic lawmakers largely supported the plan. House Speaker Michael E. Busch said it was a "very conservative budget" that was also "socially responsible."

The governor's plan include far fewer layoffs than expected, at 44. About 200 vacant state positions will also be eliminated. The total state work force is $70,000.

Still, Patrick Moran, the Maryland head of American Federation of State, County and Municipal Employees, which represents 30,000 state workers, bemoaned rounds of earlier previous job cuts. He wished O'Malley considered new revenues sources – like renewing a higher tax on million-dollar earners rather than letting it expire – to shore up the budget.

"There is obviously a revenue problem," Moran said.

O'Malley proposed snipping $123 million from state Medicaid aid to hospitals, a figure hospital advocates were scrambling Tuesday to understand. "It is definitely a big cut," said Jim Reiter, a spokesman for the Maryland Hospital Association. "We're trying to get more people enrolled in Medicaid who need care. We're trying to expand it to improve coverage and not cut it back."

As he'd hinted last week, O'Malley abandoned his freeze on tuition costs at the state's university system, proposing a 3-percent hike that would generate $16 million yearly.

Local officials had been bracing for deep cuts in state aide, but O'Malley left the assistance to 23 counties and Baltimore City relatively unscathed.

"It could have been worse," said Howard County Executive Ken Ulman, who said O'Malley's previous experience as mayor of Baltimore made him sensitive to the needs of local jurisdictions.

But that could change as the budget plan moves through the Assembly.

Senate President Thomas V. Mike Miller said he'd prefer local governments to shoulder a larger share of the cost cutting. He said cuts are "all on the back of the state" which, he said, "is not quite fair."

Some state-level spending decisions assist local governments. State budget chief T. Eloise Foster confirmed that Maryland would defer purchases of new voting machines, saving $9 million in state money as well as $9 million in matching funds from counties.

O'Malley got kudos from environmentalists who were pleased that his plan includes $20 million to curbing polluted runoff from farms and developed lands.

Kim Coble, Maryland executive director of the Chesapeake Bay Foundation issued a statement saying that O'Malley's funding of the Chesapeake and Atlantic Coastal Bays Trust Fund "demonstrates his commitment" to achieving the goals he set last May to accelerate the state's bay cleanup efforts.

Coble also warned lawmakers against cutting the fund, noting that Maryland is under pressure from the Environmental Protection Agency to show more progress in restoring the bay in the next two years.

By the end of the day it still appeared that tax cuts are off the table – at least for this year. Miller predicted that both the an alcohol tax and the gas tax would have be "addressed ... at some point in time."

"I'm prepared to do so when it is absolutely necessary," he said. "But until that time we have to treat ourselves like Harry Homeowner and live within our means."

Baltimore Sun reporters Timothy B. Wheeler and Larry Carson contributed to this article.

Gov. Martin O'Malley said he will defer some capital projects, continue a state employee furlough plan and retain a freeze on Medicaid payments to hospitals in order to close a $2 billion budget gap.

"I do not relish this," O'Malley said Tuesday afternoon about the spending plan for next year. "There is nothing about this I enjoy."

The plan includes no new taxes and allows the millionaires' tax to lapse. It also assumes that the state will bring in $85 million in gaming revenues from Maryland's fledgling gambling program. O'Malley's budget also relies upon $389 million from a second federal stimulus program, though Congress has not yet approved that aid and there is no guarantee that it will materialize.

The $13 billion plan also calls for a 3 percent tuition hike in the state university system.

Republican leaders, briefed on the plan earlier in the day, said the governor's budget relies too heavily on transfers of money from capital projects and defers difficult decisions until next year, when they believe Democrats will seek tax increases. House minority leader Anthony J. O'Donnell also said the governor should reject a second round of stimulus funding and instead reduce the state's budget.

O'Malley's plan calls for far fewer layoffs than expected -- roughly 200 vacant positions will be eliminated and 44 filled jobs will be lost. Still, lawmakers may try to avoid layoffs. Senate President Thomas V. Mike Miller expressed concern about the prospect of state workers losing their jobs.

"I'm aware of certain programs that remained intact," Miller said in an interview Monday evening. "If layoffs are going to be contemplated I'd rather those programs go by the wayside than layoffs take place."

The plan also sets aside $50 million for an expanded tax credit for the renovation of aging buildings. Last week, Miller hinted that he might take aim at that program, indicating that such spending could wait for better economic times.

In general, lawmakers can only cut from the budget proposal submitted by the governor, and cannot add new programs or spending without identifying a source of the money. Under state law, the governor must submit and the Assembly must adopt a budget they believe to be in balance.

Projections show a $2 billion gap between revenues and expenditures for the budget year that begins July 1; the shortfall must be closed through spending cuts, revenue increases, transfers from reserve accounts or some combination of those and other measures.

The governor's plan also includes $20 million to fund a new $3,000 tax credit for businesses that hire employees off the unemployment rolls and $20 million for the Chesapeake Bay restoration fund.

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