O'Malley Warns Of Budget Cuts

Trims Could Total 5% of State Spending

House Minority Leader Anthony J. O'Donnell offered a GOP fiscal plan and an alternative approach to slot machine gambling.
House Minority Leader Anthony J. O'Donnell offered a GOP fiscal plan and an alternative approach to slot machine gambling. (By Gail Burton -- Associated Press)
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Washington Post Staff Writer
Friday, September 26, 2008; Page B01

Maryland Gov. Martin O'Malley announced yesterday that he has asked state agencies to identify hundreds of millions of dollars in spending cuts, as much as 5 percent of state government expenditures, to balance the budget as major revenue sources decline in the sour economy.

O'Malley (D) predicted an "extraordinarily difficult budget next year" if his administration does not start to pare spending during the current fiscal year. "While these cuts will not be easy, it is clear that the economic crisis our nation is experiencing will have a dramatic impact on next year's budget," he said in a statement.

The governor said he expects to recommend cuts to the Board of Public Works, which approves state contracts, on Oct. 15. Budget officials said some reserve funds would be used to help bridge the gap in Maryland's $14.5 billion general fund budget for this fiscal year.

State analysts estimate a shortfall of about $1 billion for fiscal 2010 and $432 million for the current fiscal year, which began in July, because of lagging collections of sales and income taxes.

The economy is also taking a toll on budgets in Virginia and the District. Virginia faces a two-year shortfall that could be three times previous projections -- at least $2 billion and nearly $3 billion by some estimates. State spending cuts could range from 2 percent to 20 percent and might include layoffs at some agencies, Gov. Timothy M. Kaine (D) has said.

District officials said this week that after years of surpluses, they face a gap of $131 million in the fiscal year that begins next month.

In Maryland, O'Malley said he will work with lawmakers to avoid cuts to unemployment insurance, foreclosure-prevention programs and energy assistance to low-income families. But aides said a wide variety of state services are on the table, including health care, the University System of Maryland and funding for local governments.

"There's not much left in terms of fat that can be trimmed," O'Malley spokesman Rick Abbruzzese said. "We're going to be cutting into flesh, and it will not be easy."

The state enacted $1.4 billion in tax increases during a special session last year to close a structural shortfall in its finances. O'Malley and lawmakers have since cut hundreds of millions of dollars more from the general fund and this month announced reduced funding for transportation projects.

Also yesterday, Republicans in the House of Delegates rolled out a plan to solve Maryland's fiscal problems by rolling back the tax increases and curtailing growth in state spending in the next fiscal year.

Although GOP leaders formally announced their opposition to the November ballot proposal to legalize up to 15,000 slot machines as a way to raise revenue, they said they would support legislation to generate revenue immediately by auctioning slots licenses to operators who accept the lowest share of the proceeds.

Many Republicans supported legalizing slots under former governor Robert L. Ehrlich Jr. (R), who was unable to get a plan through the legislature. But yesterday, House Minority Leader Anthony J. O'Donnell (R-Calvert) said the party opposes the proposed change to the state constitution that voters will be asked to authorize Nov. 4.

O'Donnell called the GOP plan "a real public policy offering that's consistent with what we've been saying for years: We just stop our excessive spending ways."

The GOP position drew quick criticism from O'Malley officials and slots proponents. Abbruzzese called the GOP budget "pie in the sky numbers." The state's leading pro-slots group, For Maryland For Our Future, issued a news release with a photo of O'Donnell hugging a colleague to celebrate passage of a slots bill in the House in 2005.

Also yesterday, a Prince George's County Democrat renewed his call for legislation to close tax loopholes for some corporations that do business in Maryland.

Of the 129 largest for-profit companies operating in Maryland in 2006, 57 percent paid corporate income taxes to the state, said Sen. Paul G. Pinsky, citing data from the state comptroller's office. He said he plans to introduce legislation next year to close the loophole.

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