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Time of Reckoning
Budget cuts are needed, but so are higher taxes.

Sunday, July 15, 2007

AFTER SPENDING the better part of a decade in denial, Maryland is gradually coming to grips with the fact that it's been living in a fiscal fantasyland. Faced with a $1.5 billion gap between projected income and expenses in a budget of about $15 billion, Gov. Martin O'Malley (D) has begun chipping away at the problem, starting with the outlays. Predictably, he is under attack -- from liberals and unions who say the cuts are pitiless and cruel and from Republicans who say they don't go far enough. That's a good sign that the governor is on the right track.

The hole in which Maryland finds itself was dug mainly by previous Democratic governors and lawmakers, so it's only fair that Mr. O'Malley and the legislature's current Democratic leadership should figure a way out. The original fiscal sin, nearly a decade ago, was to cut taxes when it was clearly irresponsible to do so; that misstep was compounded by massive new spending on education and soaring health costs. The result, loudly and repeatedly forecast, is the so-called structural deficit with which Mr. O'Malley is now grappling.

As the governor has said, higher taxes will have to be a part of the solution. Yet he has wisely started with budget-cutting -- $153 million from the fiscal year that started this month, plus some $60 million in funds left unspent from the fiscal year that ended June 30. The $153 million trim represents just 1 percent of the state's general fund spending, but there's no denying that some of it will hurt. Spending cuts on foster-care services may imperil some vulnerable children; the $12 million reduction in the budget for higher education will mean unfilled vacancies and some crowded classrooms; hospitals will be squeezed by the state's decision to limit Medicaid payments that had been expected to rise to cover longer patient stays. Across state government, nearly 150 positions will be eliminated by Mr. O'Malley's cuts. That's a drop in the bucket, but it follows on previous reductions made by his predecessor, Robert L. Ehrlich Jr. (R).

The governor found reluctant support for his plan from the other two members of Maryland's Board of Public Works, Comptroller Peter Franchot (D) and Treasurer Nancy K. Kopp (D). Both suggested that any further austerity would be unbearable. But as Mr. O'Malley knows, further tightening will indeed be necessary. The state has shrugged off the gathering storm for too long (much as the governor himself ignored it as a candidate). It's fair to expect more trims plus some combination of higher taxes on high-income earners, corporations, services and sales, among other targets.

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