O'Malley aims to limit Maryland budget cuts
Wednesday, January 20, 2010
Dire warnings that Maryland's $2 billion budget shortfall could result in major cuts to schools or the layoffs of hundreds of state workers subsided Tuesday when Gov. Martin O'Malley announced that for the second straight year, he would take money from reserve funds and employ accounting maneuvers to help cover the budget gap.
Leaders of the General Assembly praised O'Malley's spending plan for minimizing cuts to programs favored by Democratic-leaning constituencies, including labor unions, environmentalists and teachers. But the Republican minority denounced it as a fiscally irresponsible package of election-year gimmicks and said it will be followed by a major tax increase next year -- a case they expect to make in races against O'Malley and other Democrats.
"They're going to beg and borrow and do whatever they can to get through this year," said Senate Minority Leader Allan H. Kittleman (R-Howard). "The governor's chosen to kick the can down the road."
O'Malley responded forcefully to complaints of fiscal mismanagement, saying at a news conference that if Republicans have better ideas to balance the budget, he would be happy to see them. O'Malley said his combination of cuts and accounting maneuvers was the best way to protect state services and jobs, especially given that the drop in state revenue appears to have bottomed out.
"We are acting prudently and in a fiscally responsible way to move our state out of this recession as quickly as we possibly can while doing as little damage in the meantime to those critically important things that define our quality of life and allow us to be a state that is well positioned for the new economy," O'Malley said.
Republicans weren't the only ones to question the governor's plan. Wall Street credit analysts said the sketch that O'Malley offered Tuesday raised concerns about how much long-term debt Maryland would take on, whether the budget properly accounts for a drop-off in federal stimulus funding next year and whether it would address a growing structural imbalance. The state's day-to-day expenses are projected to outpace revenue by $2 billion or more a year through 2015.
"I see actions being taken to balance the budget [this year], but my question is, 'What are you doing to improve the situation long term?' That's not immediately clear," said Maria Coritsidis, an assistant vice president with Moody's Investors Service.
Coritsidis and other analysts said they would have to review hundreds of pages of details, due out Wednesday, before coming to conclusions about whether the state's coveted AAA bond rating could be in jeopardy.
O'Malley would use nearly $900 million in federal stimulus funding to help balance the budget, leaving a projected gap of almost $2 billion for the fiscal year that begins July 1.
O'Malley wants to erase $750 million of that shortfall by continuing cuts approved last year, including more than $100 million for local road projects. He also proposed further reducing Medicaid payments to hospitals, minor reorganizations of state agencies and layoffs of 44 of Maryland's 70,000 state workers, mostly from higher education.
The governor proposed to close the remaining gap of about $900 million through transfers that would result in the state issuing more bonded debt to fund projects that were to be paid for with cash and reserves.
O'Malley says he has not proposed taking money from the state's $635 million rainy-day fund because he does not want to jeopardize the state's bond rating.