Mixed news for Maryland from federal debt deal

A memo circulating in the administration of Gov. Martin O’Malley (D) on Tuesday listed both “good news” and “bad news” for Maryland from the federal debt deal cut by Congress and signed by President Obama.

Among the good news: There will be do direct cuts to Medicaid unless proposed by the bipartisan commission. “Since Medicaid represents about half of the federal funding in the State budget, this is a big win for the State,” the memo said.

It also noted that the plan does not rely exclusively on cuts to domestic spending and that averting default on the federal level reduces the likelihood of a downgrade in U.S. credit, which in turn improves the chances that Maryland will maintain its AAA bond rating from all three agencies.

Caps on domestic spending are among the “bad news.”

“It is unclear what programs will ultimately be cut, but clean water and energy assistance programs were targeted by House Republicans and in some cases the President in budget discussions earlier this year,” the memo said. “The State relies heavily on federal funding to restore the Bay and provide low-income families with energy assistance.”

Other reductions to domestic spending could “impair implementation of health reform,” and the commission could also recommend deep cuts to Medicaid, the memo noted.

Separately, Warren Deschenaux, chief budget adviser to the Maryland General Assembly, said that while welfare and Medicaid are protected in the first phase of the deal, transportation, education and the environment are not.

“That will hurt gradually as cuts are phased in,” Deschenaux said. “The bigger problem is more long-term and related to constraints on defense spending, employment and wages. The potential is there for slower growth than we are used to, similar to the mid-’90s.”

Deschenaux added that to the extent the commission “decides to open up” entitlements, “the direct budget pressure could become much more acute.”

John Wagner has covered Maryland government and politics for The Post since 2004.
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