Md., Va., D.C. Face Budget Upheaval

Slumping collections of sales and income taxes are likely to force Gov. Martin O'Malley (D) to make about $300 million in cuts by next month. Another round of proposed cuts is expected to be detailed in January, when O'Malley unveils his spending plan for fiscal 2010.

O'Malley has said little about what he intends to cut, but he is facing mounting pressure to reduce aid to local governments, which makes up about 40 percent of Maryland's budget. O'Malley, a former Baltimore mayor, told reporters yesterday that he remains opposed to shifting teacher pension costs to Maryland counties, a move that could save the state more than $600 million a year.

In Virginia, the cuts will be deep, officials said. "We're facing a major reduction in state spending, a lot more than anyone predicted,'' said Sen. R. Edward Houck (D-Spotsylvania), one of the legislature's budget negotiators.

Virginia's latest budget shortfall stems from declines in sales, corporate and withholding taxes, among other factors.

"I don't think it's that surprising,'' said Del. M. Kirkland Cox (R-Colonial Heights), the House majority whip and a budget negotiator. "But it's a pretty big mountain to climb."

The forecast was presented yesterday at a closed meeting of the Governor's Advisory Council on Revenue Estimates, composed of state legislators and business leaders.

In recent weeks, Kaine and legislators had talked about a possible $1 billion shortfall. But estimates are now between $2 billion and $2.9 billion during the next two years.

Kaine said he will wait until he receives revenue numbers for the first quarter of the fiscal year before he officially revises his estimate next month. In the past year, he has laid off employees, dipped into the rainy-day fund and curtailed spending.

Maryland's fiscal situation is particularly challenging, given a special legislative session last year designed to address the state's long-term finances. During the session, convened by O'Malley, lawmakers raised taxes by almost $1.4 billion annually and slowed planned spending on education and other services.

O'Malley and other state leaders have been pushing a November referendum on whether to legalize slot machine gambling as an important piece of the state's budget solution. The slots plan is projected to yield more than $500 million a year for the state within a few years. It would allow 15,000 slot machines at five locations.

The slumping economy has taken a toll on planned transportation spending in Maryland. Transportation officials this month announced this month that they are deferring $1.1 billion of $10.5 billion in planned projects in the next six years. The cuts are a result of slower-than-expected collection of gas and vehicle-titling taxes.

Staff writer John Wagner contributed to this report.