By John Wagner
Washington Post Staff Writer
Saturday, March 8, 2008

A Maryland Senate committee signed off yesterday on more than $300 million in reductions to Gov. Martin O'Malley's proposed budget for the coming fiscal year, including cutting in half the first $50 million-a-year allocation to a new fund to clean up the Chesapeake Bay.

The actions by the Senate Budget and Taxation Committee came a day after a state panel projected that revenue flowing into state coffers would fall short by $333 million during the rest of this fiscal year and the one that begins in July, largely a result of a national economic downturn that has not spared the state.

Among the casualties of yesterday's deliberations were several spending initiatives, including the bay fund, approved during a special session last fall that was primarily devoted to fixing the state's long-term finances.

Lawmakers passed $1.4 billion in annual tax increases during the three-week session and directed O'Malley (D) to cut more than $500 million from the coming fiscal year's budget. They also launched the Bay Fund, expanded subsidized health care, created a special fund for higher education initiatives and invested more than $400 million a year in additional transportation priorities.

Besides cutting $25 million from the Bay Fund, the Senate panel agreed yesterday to delay implementation or scale back several components of the health-care initiative, intended to cover 100,000 uninsured adults and provide subsidies to help small businesses provide coverage to employees.

Given the sluggish economy, which is sapping tax collections and causing economic uncertainty, the health-care decision "was a matter of being prudent," said Sen. Richard S. Madaleno Jr. (D-Montgomery), a member of the budget committee. "It's much better to delay expansion of health care than, a year later, have to drop people off the rolls."

Senators also cut $15 million from the newly created Higher Education Investment Fund -- money intended to support initiatives -- using it instead to pay for part of the University System of Maryland's regular operating costs next year.

A separate cut of nearly $7 million to the university system could lead to a modest increase in tuition next fall. O'Malley has proposed freezing tuition for a third year in a row.

Other notable reductions yesterday included $18 million in proposed funding for stem cell research next year and $20 million for inpatient hospital stays under the Medicaid program. Legislative analysts said the Medicaid reduction is possible because of a reduction in the estimated number of hospitalizations.

The cut that seemed to draw the most attention was the reduction in the Bay Fund allocation. The budget committee voted yesterday to allocate $25 million in each of the next two fiscal years, instead of the $50 million a year envisioned during the special session last fall.

Lawmakers are still struggling to find consensus over how bay fund money will be spent. Environmental advocates said they were frustrated with the reduced funding, in any case.

"We're very disappointed, and we're going to be working with the House leadership and the governor to get it back," said Kim Coble, executive director of the Chesapeake Bay Foundation. "We are decades behind on bay restoration, and it seems every time we need to compromise on something, it's the health of the bay."

The full Senate is expected to debate the budget next week before shipping it to the House of Delegates. House leaders have said they will have some different priorities, including funding more of the $23 million that O'Malley requested for stem cell research.

Some delegates have also expressed interest in deeper cuts to leave more money to weather an extended economic downturn, if one occurs.

The budget O'Malley submitted to lawmakers in January projected about $177 million in surplus funds, not including a mandated state reserve fund.

The cuts by the Senate largely offset the downward revision in estimated revenue this week, leaving a projected fund balance of $156 million in next year's budget.

"You haven't made progress, but you haven't lost ground," Warren Deschenaux, the legislature's chief fiscal analyst, told senators yesterday after they finished making cuts.

Separately yesterday, a bill was introduced by Sen. Verna L. Jones (D-Baltimore) that would impose a surcharge on high-income earners. O'Malley spokesman Rick Abbruzzese said the governor would "take a serious look" at the bill as an alternative to a tax on computer services that was passed during the special session and is scheduled to take effect July 1.

Business groups have been lobbying for repeal of the tax, which is projected to generate $200 million a year. The tax was not part of O'Malley's proposals during the special session.

Lawmakers have said they are reluctant to repeal the tax without adopting another source of revenue. House Speaker Michael E. Busch (D-Anne Arundel) said yesterday that he does not believe there is consensus for an income tax surcharge as an alternative.