State Budget Challenge Taking Shape

Today’s coverage in the Baltimore Sun frames the nature of the State budget challenge lying ahead. From the article:

Due largely to a national recession and a slow start for gambling, the state’s budget remains awash in red, with as much as a $1.6 billion shortfall in the next fiscal year’s $13 billion operating budget and a structural deficit — the persistent difference between state revenue and state spending — of about $2 billion, legislative analysts say.

A committee of top legislators recently recommended that the governor shrink the structural deficit by at least one-third this year, meaning that O’Malley would need to reduce spending by about $667 million, in addition to closing the gap in the operating budget.

The governor has said that his fiscal 2012 spending plan, to be unveiled this month, reflects the “new normal” of more than 7 percent unemployment and lower revenue from income taxes and other sources. He has pledged not to introduce new or increased taxes, though he has said that he would be open to revenue proposals approved by the General Assembly.

In recent memos and conversations with agency leaders and advocates, state officials have revealed some of O’Malley’s options for cost savings.

For the first time since taking office in 2007, the governor is considering cuts to education spending. One plan calls for an across-the-board 5 percent cut to K-12 schools. He also is trying to reduce the state work force through buyouts — or layoffs, if necessary — and might merge some agencies.

And there’s a movement to attack the unfunded pension liabilities, which could help drive down the structural deficit. O’Malley’s budget advisers have presented him with plans to reduce benefits to new state workers, and renegotiate with existing employees. Local governments or school boards might be asked to shoulder some of the teacher pension burden — an option the former Baltimore mayor has bristled at in past years.

“This is going to be the most difficult budget that this governor has ever proposed,” said Matt Gallagher, O’Malley’s chief of staff. “No one will be happy, but we have to figure out the fairest and most sustainable path.”

T. Eloise Foster, secretary of the Maryland Department of Budget and Taxation throughout O’Malley’s tenure, said the next budget will be particularly ugly because “there are no easy choices left to make.” In O’Malley’s first term, she said, the state cut $5.6 billion in spending.

The Sun also has a blog post from Julie Bykowicz comparing the dimensions of Maryland’s budget woes to those of other states. From that discussion:

The Washington-based Center on Budget and Policy Priorities recently summarized the woes this way: “The worst recession since the 1930s has caused the steepest decline in state tax receipts on record. State tax collections, adjusted for inflation, are now 12 percent below pre-recession levels… At least 46 states struggled to close shortfalls when adopting budgets for the current fiscal year.”

A chart compiled by the center shows projected fiscal 2012 deficits as a percentage of the total budget. Maryland’s $1.6 billion shortfall is about 12 percent of its budget. Illinois’ $17 billion is more than 50 percent. In total, state deficits amount to $112.7 billion — about 19 percent of total state spending.

The blog post includes a number of links to off-site sources of similar comparisons.

Michael Sanderson

Executive Director Maryland Association of Counties

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