'Doomsday' Budget Dictates Tough Cuts
With $1.5 Billion Shortfall Expected, Analysts Make Sobering Suggestions

By John Wagner and Lisa Rein
Washington Post Staff Writers
Thursday, June 28, 2007

In Maryland, here's what a worst-case budget scenario might look like next year: State funding of education frozen for a year. Some promised money no longer available for nursing homes, drug treatment and children with disabilities.

Dollars flowing to the university system would not be adjusted for inflation, resulting in possible tuition increases of 15 percent. And counties would have to shoulder half the burden of teachers' retirement costs -- a potential $324 million hit to their budgets.

If Maryland lawmakers do not raise taxes in the coming year, they could be forced to take those steps and nearly 150 others to close a looming budget shortfall of nearly $1.5 billion, they were told yesterday.

The presentation of a "doomsday" budget by legislative analysts was intended to help legislators come to grips with the magnitude of Maryland's budget problems -- and help legislative leaders make the case for tax increases.

"I don't think anyone's expecting that we're going to cut ourselves out of this," House Speaker Michael E. Busch (D-Anne Arundel) said after the briefing of the House and Senate budget panels. "But we're trying to make sure we make government as efficient and effective as we can first."

Choices about tax increases, spending cuts and the possible legalization of slot-machine gambling will have to be made by next spring, when the Democrat-led legislature plans to approve the $15 billion general fund budget for the fiscal year that starts in July 2008.

Sen. J. Lowell Stoltzfus (R-Somerset) called yesterday's exercise "a setup to make people holler and scream to justify tax increases" and said Democrats should have done more to address the budget situation during the legislative session that ended in April.

Gov. Martin O'Malley (D), who must submit a proposal by January to start the budget process, told reporters yesterday that the doomsday scenario would spark talk about the balance between spending cuts and tax increases.

"A lot of this is going to depend on how this cuts-only approach is greeted by the legislature and what kind of stomach they have for it," said O'Malley, who was attending a conference of the Maryland Municipal League in Ocean City.

"Can we eliminate this deficit only by cuts?" he said during an address to the group. "Yes, we can. . . . But it will involve a lot of really bad choices that will make us weaker as a state."

Busch has suggested raising the sales tax and corporate income taxes, among others, while Senate President Thomas V. Mike Miller Jr. (D-Calvert) has insisted that the legalization of slots be part of any budget-balancing package. By some estimates, slots could yield $800 million a year for the state, though it would take a few years to realize that amount.

O'Malley has said budget cuts will be a part of the solution, but he said yesterday that he wants to protect aid to counties and municipalities.

Education funding and other aid to Maryland's localities has swelled in recent years to more than 40 percent of the state's general fund. That assistance would take a big hit under the scenario presented yesterday. Montgomery County would lose more than $155 million in anticipated aid -- a 24 percent reduction. Prince George's would lose more than $90 million -- an 8 percent cut.

David Bliden, executive director of the Maryland Association of Counties, said he considered the budget presentation "a reality check" but is hopeful lawmakers will craft a budget fix that is fair to local governments. Most counties would have to raise property taxes significantly to make up for the cuts in teacher retirement costs and other state aid, he said.

"By shifting responsibility to the counties, all that you're doing is shifting revenue-raising responsibility," Bliden said. "The counties are not going to stop paying teachers' retirement costs."

Maryland and its counties share the cost of public education, but the state pays the full amount for teacher pensions -- an arrangement that legislative analysts suggested should be reexamined.

Maryland's budget problems are years in the making, but lawmakers point to two decisions largely responsible for the position they are in today: an income tax cut passed nearly a decade ago that saps about $700 million a year from the treasury; and Maryland's landmark 2002 Thornton education program, designed to pour tens of millions of dollars into jurisdictions that a statewide commission said had historically been underfunded. Lawmakers never reached an agreement on how to pay for the $1.3 billion program.

A booming economy, coupled with fund transfers that shortchanged land preservation and transportation programs, allowed the state to get through the four-year tenure of Gov. Robert L. Ehrlich Jr. (R) without addressing underlying budget problems.

O'Malley's first budget, which lawmakers passed largely intact in April, was balanced only by draining nearly $1 billion from the state's "rainy day" reserve fund.

Yesterday's presentation suggested that relatively few easy fixes remain.

Among those taking a hit would be state employees, whose planned 2 percent cost-of-living increases would be canceled, saving $62 million. A prescription drug program for state retirees eligible for Medicare Part D would also be cut, saving the state an estimated $34 million and providing former workers with federal benefits that are less generous.

Other suggested reductions would cut across state government and vary greatly in size and impact.

Analysts suggested delaying $3 million in funding for a drug-abuse treatment initiative that is projected to help 1,200 people. They suggested canceling a state program that seeks to help young, unwed fathers, at a savings of $772,000.

The selective early release of 125 elderly and nonviolent inmates, meanwhile, could save $500,000, lawmakers were told.

And the state could save $270,000 by shifting the responsibility for purchasing mosquito insecticide to municipalities and counties. But, the briefing material noted, the move could come at a cost: "If municipalities and counties do not participate, there could be an increase in the mosquito population."