O'Malley's budget to focus on job creation and budget cuts

Gov. Martin O'Malley (D) is focusing on job creation and spending cuts in the budget he releases Tuesday.
Gov. Martin O'Malley (D) is focusing on job creation and spending cuts in the budget he releases Tuesday. (Brian Witte/associated Press)
By Aaron C. Davis and John Wagner
Washington Post Staff Writers
Tuesday, January 19, 2010

Maryland Gov. Martin O'Malley will outline a spending plan Tuesday that relies heavily on shuffling money between bank accounts and cuts to almost all state programs except K-12 education to close an 18 percent budget gap, according to sources familiar with his plan.

The single biggest fix would come from transferring funds, including one controlled by the comptroller's office and others dedicated for construction and other capital projects, according to legislative sources briefed on the budget. The budget also assumes nearly $400 million in new federal funding included in the House verson of national health-care reform.

The governor's budget would eliminate a few hundred state positions, according to an administration source. Previously, about 10 percent of such personnel cuts by O'Malley (D) have resulted in layoffs. That percentage will be higher in the coming round of cuts, the source said.

O'Malley's spending plan also is expected to continue hundreds of millions of dollars in cuts to local governments begun late last year and to allow tuition costs to rise for in-state students at the University System of Maryland. In recent days, O'Malley has said he would probably be forced to rely on those and other measures, including continued use of federal stimulus funding and temporary transfers from special funds for the environment and transportation, to close the gap.

Under laws and contracts Maryland lawmakers have approved in prior years, the state has committed an estimated $15.7 billion in general fund spending in the budget year that begins July 1. The state, however, expects to collect only $12.8 billion in taxes during that time.

Nearly a third of Maryland's $2.9 billion gap would be whittled to nearly $2 billion by planned use of its remaining stimulus funding. An additional $600 million to $750 million of the shortfall will be erased if the state continues the cuts approved last year. That leaves a gap of $1.2 billion to $1.4 billion, and Maryland's constitution requires a balanced budget.

According to the sources, much of that gap -- roughly $900 million -- would be filled with money transferred from other funds. Hundreds of millions of dollars in cash earmarked for capital projects, for example, would be used to cover the general fund imbalance. The state would still complete the capital projects but would pay for them with money raised by the sale of bonds, which are paid back over decades, with interest.

O'Malley also appears to be betting on Congress approving a provision included in the House version of the health-care overhaul. That would extend a higher federal match for Medicaid payments to states that is scheduled to expire halfway through the coming budget year.

O'Malley's budget also would call for more spending for some of his top priorities than what the General Assembly approved last year.

O'Malley wants the General Assembly to approve $20 million for a key Chesapeake Bay restoration program, according to the administration source. The governor also has said he will ask the General Assembly to approve another $20 million to offset a job-creation tax credit. The credit would provide $3,000 to companies for each unemployed worker they hire. Other jobs initiatives also would receive funding under his budget.

The prospects for the Chesapeake funding are unclear.

A year ago, O'Malley requested $25 million for the Chesapeake and Atlantic Coastal Bays 2010 Trust Fund, which is supposed to receive a $50 million annual share from the state's motor-fuel tax and the tax on vehicle rentals. The General Assembly cut that appropriation to $10 million last spring, and falling tax revenue over the summer prompted the governor and Board of Public Works to cut it further, to $8 million.

Although O'Malley is likely to face pointed questions from lawmakers about whether the state can afford the bay money, Cindy Schwartz, executive director of the Maryland League of Conservation Voters, said her organization was very pleased O'Malley is including it in his proposed budget.

"In an economy like this, there's not a lot of good news to go around," Schwartz said. "What it says is the governor understands that the bay will leave a lasting legacy for generations and it is something that needs attention."

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