State Could Face $200 Million Gap
Tax Revenue Lags in Sluggish Economy

By John Wagner
Washington Post Staff Writer
Wednesday, July 9, 2008

Maryland could experience a budget shortfall in the range of $200 million for the fiscal year that started last week if the sluggish economy continues, lawmakers learned yesterday.

Legislative analysts reported that collections of income and sales taxes, the two largest sources of general fund revenue, have fallen short of expectations, a trend that shows no signs of changing soon.

"You probably need to start thinking about what you're going to do . . . if revenues don't meet their targets," said Warren Descheneaux, the General Assembly's top budget analyst. At a Senate committee briefing, Descheneaux said lawmakers could be looking at "a hole of perhaps $200 million" by the end of fiscal 2009, which started July 1.

The sour outlook follows a year in which Gov. Martin O'Malley (D) and legislative leaders approved increases in several taxes and conducted several rounds of spending cuts to address a gap in Maryland's $15 billion general fund budget.

Descheneaux said the state seems to have turned a corner from facing "structural" budget problems, caused by spending more than the state raises in revenue, to a "cyclical" challenge, caused by a down cycle in the economy.

Like much of the country, Maryland is experiencing a slowdown in employment, an increase in temporary cash-assistance claims, and sharp drops from a year ago in home and vehicle sales.

The decline in vehicle sales, resulting in lower-than-expected collections in titling taxes, also is hurting a separate fund used to pay for state transportation projects. Collections of the state's gasoline tax are coming in more slowly than expected, exacerbating the problem.

Descheneaux said that unless state transportation officials "come up with something magical," they will probably have to scale back transportation projects in coming months.

The potential gap in Maryland's general fund pales in comparison with the shortfall of more than $1.5 billion that prompted O'Malley to call lawmakers into a special session last fall.

The budget fix passed during the special session relies partly on the passage of a November ballot proposal authorizing up to 15,000 slot machines in Maryland. If the proposal fails, the state will have an additional budget gap of about $500 million a year, according to figures provided to lawmakers yesterday.