State counts on federal stimulus to close gap

Friday, Jan. 23, 2009

ANNAPOLIS – With the national economy in turmoil and state revenues plunging, Gov. Martin O'Malley unveiled a $14.4 billion spending plan for fiscal 2010 that eliminates 700 state government positions and anticipates $350 million in federal stimulus aid.

The budget, which the General Assembly must pass before adjourning April 13, generated swift praise from Democrats for preserving aid to vital programs and full-throated criticism from Republicans for leaving in place long-term fiscal imbalances.

In drafting the budget, O'Malley (D) had to close a roughly $1.9 billion shortfall between expected revenues and spending — a gap that swelled as the national economy soured.

"We have a lot of reason for optimism," O'Malley told reporters Wednesday. "And if anybody for a second gets down in the mouth about where we stand in relation to our ability to confront this crisis, just take a look at some of the other states. But we cannot sugarcoat the difficulty of these times."

The breadth of Maryland's budget gap will come into clearer focus in March, when the next round of revenue estimates is released.

Overall, O'Malley's fiscal 2010 proposal, which will take effect July 1, reduces baseline spending nearly 1.6 percent from the 2009 budget, which is rare in Annapolis. Several agencies are "level-funded," meaning they would receive no increase in spending, even for inflation.

"If you haven't been cut over last year's funding, consider that a victory in this environment," said Del. Murray D. Levy.

O'Malley delivered positive news for programs that have been a hallmark of his administration, such as a continued freeze on college tuition and $25 million to clean up the Chesapeake Bay, two-and-a-half times more than initially expected.

Education spending, too, increased from nearly $4.5 billion to $5.4 billion, although a fund that provides more aid to counties where the cost of education is higher, known as GCEI, will remain at $37.9 million for a savings of $88 million in fiscal 2010.

That drew applause from lawmakers who consider education sacred, even during a recession.

Counties were spared from picking up any portion of the cost of teacher pensions, which has been the subject of intense debate among legislative leaders since last summer. Senate President Thomas V. Mike Miller Jr. (D-Calvert, Prince George's) has said local governments must shoulder a portion of that expense.

"That's one of the failures of this budgetary process," he said.

Angst over the 700 proposed layoffs, which are expected to save the state $30 million, transcends party lines.

"This is not a good time for anybody to be laid off," said Levy (D-Charles). "I hope they're able to reverse that."

"I think once you start down that slippery slope it's hard to stop," Miller said.

Cutting jobs should be a last resort, said House Minority Leader Anthony J. O'Donnell (R-Calvert, St. Mary's), even if it means putting a temporary lid on worthy programs like expanded health care and a dedicated fund to restore the Chesapeake Bay.

"We're talking about laying off state employees and spending on these other things that are nice to have, but not absolutely necessary," he said.

Levy said aides to O'Malley told him that the layoffs would be the first item nixed from the proposal if the state receives more federal stimulus money than expected. Senate Budget & Taxation Committee Chairman Ulysses Currie (D-Prince George's) prefers that the state set aside any stimulus money in case the budget crisis worsens or to replenish the $255 million in rainy day funds that O'Malley dipped into for his fiscal 2010 plan.

It's unwise for O'Malley to assume a federal stimulus that is no certainty, O'Donnell said. "There's a lot of sense in the old axiom ‘Don't count your chickens before the eggs have hatched.'"

The spending proposal also transfers money across ledgers, such as a $367 million account for local income tax refunds that the state would have to repay and could jeopardize its cherished AAA bond rating.

O'Malley also moves $51.5 million from a fund paid for with sales taxes to pay to replace the aging helicopters flown by the Maryland State Police. The administration also still plans to borrow $40 million to buy two new helicopters.

All told, O'Donnell said the governor failed to resolve the state's long-term economic woes and did not roll back ill-advised spending decisions made by the Democratic majority in recent years

"There's still a significant budget deficit here," he said. "It just defers them to the out years and borrows money that has to be repaid."

A Department of Legislative Services analysis notes that the spending plan leaves a $600 million to $700 million hole in the coming years. "It's kicking the can down the road," O'Donnell added.

But Republicans should be pleased that O'Malley's budget reduces spending, said Del. John L. Bohanan Jr. (D-St. Mary's), who chairs the Spending Affordability Committee, which recommended a 0.7 percent rise in the fiscal 2010 budget. And he counseled that the projected future deficits might be taken care of if the economy picks back up.

The legislature's budget committee will take a hard look at some of O'Malley's proposals, including the proposed $17 million in-state tuition freeze, to determine whether the state can afford them, Bohanan said. Lawmakers can cut expenditures, but only the governor can increase spending.

O'Malley also unveiled his $3.2 billion capital budget, which includes money for schools, roads, mass transit, prisons, hospitals and sewage treatment plant upgrades. It includes $260 million for school construction and renovation projects statewide. Calvert and Charles counties are both slated to receive $17 million for improvements at wastewater plants in Chesapeake Beach and La Plata, respectively, while St. Mary's County will get $5.5 million as part of its detention center expansion.

Staff writer Sean R. Sedam contributed to this report.