Md.'s bleak budget outlook: Gap is larger than projected

By Aaron C. Davis
Washington Post Staff Writer
Thursday, November 11, 2010

After an uptick in revenue this fall offered a glimmer of hope that Maryland's recession-ravaged budget might be improving, new state data released Wednesday showed just the opposite: Rising Medicaid costs and a drop in federal stimulus funding have left the state with an even bigger gap to fill than lawmakers anticipated when the General Assembly adjourned in April.

Maryland's general-fund budget shortfall for the fiscal year beginning next summer has swelled by about $400 million from an estimated $1.2 billion in September to $1.6 billion.

To close the gap, Gov. Martin O'Malley (D) and the legislature must cut programs, payrolls or other funding commitments - now forecast to total $15.6 billion - down to about $14 billion, the amount of revenue that budget analysts assume will be available next year if the nation continues on a moderate economic rebound.

In the context of states' struggles to balance the rising costs of services for the unemployed and a drop in federal stimulus spending with depressed state tax revenue, Maryland's gap remains better than most. But the truly bad news rests in the long-term outlook.

In the next four years, Maryland faces cumulative annual budget gaps of more than $7.2 billion. That's nearly 30 percent more than the combined $5.6 billion in cuts and budget maneuvers that O'Malley touted on the campaign trail to show that he had been willing to make, as he said, the "tough choices" during his first term to manage Maryland through the recession.

Wednesday's report, by the state's nonpartisan Department of Legislative Services, suggests that even bigger cuts in government services, the state payroll or other areas will be needed during O'Malley's second term.

In a briefing to lawmakers Wednesday evening, Warren Deschenaux, the state's chief budget analyst, framed Maryland's looming budget shortfall - and its limited funds to combat the gap this year - as the result of not doing enough to make permanent cuts to state programs.

"We are now seeing what it means to rely on one-time funding to pay for ongoing expenses," he said.

In each of the past two years, O'Malley has sought to close nearly $2 billion annual budget gaps with almost equal parts cuts and fund transfers. Republicans and some Democrats said at the time that those efforts were only delaying inevitably larger and more painful cuts.

For one, Maryland has reduced Medicaid eligibility requirements, allowing it to enroll more than 100,000 additional residents in state-assisted health-care programs during the recession. Next year, federal stimulus funding to help pay for that disappears, adding about $1 billion to state costs. Inflation and other factors also have increased the expense, the new data show.

On the campaign trail and since he won reelection, O'Malley repeatedly has promised that his budget for the coming fiscal year would include no new taxes and instead rely heavily on cuts. But several members of the Democratic majorities in both chambers of the General Assembly already have vowed to introduce legislation to increase the state's tax on alcohol and to tighten loopholes to require businesses to pay more taxes.

The budget scenario presented Wednesday also assumes that nearly all 70,000 state workers will take at least one week's furlough annually through 2012, and that Maryland employment rate doesn't rebound to pre-recession levels until late 2013 or 2014 - more than six years after the downturn began.

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