Cuts foreshadow bleaker budget times

‘Great trepidation’ accompanies fiscal forecasts, funding priorities

‘‘I think you [would] almost have to go across the board,” said House Appropriations Chairman Norman H. Conway (D-Dist. 38B) of Salisbury. ‘‘You’d have to go back and look at the doomsday budget from special session.”

That prospect has nearly every state agency and interest group that receives state aid on edge.

‘‘We are sort of looking at déjà vu all over again,” said David S. Bliden, executive director of the Maryland Association of Counties. ‘‘Now, we look with great trepidation with the state struggling with a fall in budgeted revenues. And of course, that causes fear that there will be people advocating for solving any future problem on the backs of local governments.”

Department heads and advocacy group leaders say their budgets have already been trimmed to the bone and further reductions will mean delaying spending, eliminating programs or laying off employees.

That doesn’t factor in the November referendum on slot machine gambling, which could generate up to $700 million annually for the state. Even if slots are permitted, revenues won’t start flowing for several years.

If the referendum fails, local governments that receive 40 percent of state funds may be first in line for cuts, said Sen. James E. DeGrange Sr. (D-Dist. 32) of Glen Burnie.

‘‘Some of the programs will be things that people hold near and dear to their heart, so many of these are going to feel quite painful,” he said.

That may mean shifting the cost of teacher pensions from the state to local governments or lifting the freeze on in-state tuition at state higher education institutions, Conway said.

Counties made enormous sacrifices — roughly $375 million worth — during last year’s special session and were hopeful that they wouldn’t be targeted again, Bliden said. Counties cannot bear the cost of teacher pensions without increasing property taxes, which some jurisdictions can’t do because they have already reached their tax caps.

All told, it illustrates that last year’s special session to erase the state’s $1.5 billion structural deficit was no panacea.

The Board of Public Works on Wednesday approved $50 million in general-fund reductions for fiscal 2009, as was mandated in legislation that repealed a 6 percent sales tax on computer services.

The most controversial move was rolling back a $2.5 million increase in a $56 million need-based grant program for in-state students at Maryland’s private colleges and universities, a move that Comptroller Peter V.R. Franchot (D) said was ill-conceived.

‘‘It strikes me that this particular cut to these institutions runs counter to the image of Maryland as a global leader in the life sciences that we’re trying to promote,” he said. ‘‘... This is going to have a negative impact and there’s no way to get around it. You take $90,000 out of a small liberal arts college budget ... and it’s going to have an impact. This is not some sort of large state agency that has all sorts of flexibility in their budget. These are relatively small institutions, but they’re important.”

‘‘There are challenges — the same challenges that the public universities and the community colleges are facing — but we do appreciate that we have to be part of the solution to your problem,” said Tina M. Bjarekull, president of the Maryland Independent College and University Association. ‘‘... We just want you to know this is a real cut to real people.”

Few agencies were spared as the board made the $50 million in reductions. The state health department received the largest reduction — $37.9 million — when federal matching funds and special funds were included in the $75.2 million worth of cuts. Funding will be slashed from cancer research programs at academic health centers and from the cigarette restitution fund, which provides money for tobacco prevention and cessation initiatives.

‘‘In looking at the overall mission of the department to protect the health of the population and to provide services in the area of public health, this was the least offensive among many offensive types of cuts that we had to make,” Department of Health and Mental Hygiene Secretary John M. Colmers said.

Future cuts, however, could be disastrous to some agencies. ‘‘If another round were to occur, we’d really be looking at some programmatic changes,” said A. Skipp Sanders, deputy state schools superintendent, whose agency’s budget was slashed by $2.8 million altogether.

State budget Secretary T. Eloise Foster acknowledged more cuts could be forthcoming if the economy continues to nose-dive. Revenues were $37 million below projections last month, she said.

‘‘The $50 million in cuts that we did today at the Board of Public Works will probably not be the last time we ask the Board of Public Works to respond to the downturn in the national economy,” echoed O’Malley (D) at a Wednesday afternoon news conference.

Warren G. Deschenaux,Êthe General Assembly’s chief budget analyst, said the O’Malley administration would have been wise to go beyond the minimum $50 million spending reduction required in the computer-tax repeal bill to get ahead of projected lower revenue estimates.

‘‘It would have been an opportunity to set a lower baseline. That would have had a salutary effect,” he said. ‘‘To the extent you can make hard decisions early, the depth of cutting is less because you can realize savings for a full year instead of part of a year.”

The administration has a challenging task of putting together the fiscal 2010 budget without increasing revenues, he continued. ‘‘We found $50 million without raising too much blood. How much additional can be done without somebody being hurt is a matter of debate, but budgeting is a matter of priorities. You protect your priorities and sometimes with great regret have to let go of the things that are less important.”

State revenues continue to tumble and are unlikely to level off in the upcoming fiscal year, Bureau of Revenue Estimates Director David F. Roose said this week.

Sales tax receipts have grown by less than 2 percent in the fiscal year that ends Monday, largely accounting for the depressed figures, he said.

‘‘We had expected very low growth and we’re getting even less than that,” said Roose, noting that typical growth is between 4 percent and 6 percent. Income tax withholdings, which account for about half of all state revenues, are largely holding steady.

The 1 cent sales tax increase that took effect in January generated an additional $315 million in the current fiscal year and is expected to produce $685 million more in the coming fiscal year, Roose said.

State lottery revenues continue to rise, said Franchot, a leading opponent of the November slots referendum who argues that expanded gambling will lead to more crime, corruption and poverty. ‘‘In bad times, gambling thrives. ...” he said. ‘‘It’s just sucking money away from vulnerable people who are desperate.”

Ready to rebound

Despite the dim fiscal outlook, Maryland can absorb a possible recession better than most states, thanks to the stability of the federal government and an unemployment rate in May of 4 percent, a full 1.5 percent below the national average, according to the Department of Labor, Licensing and Regulation.

Both figures are headed in the wrong direction, though. The state unemployment rate in April was 3.6 percent and the national average was 5 percent.

‘‘The nice part is it’s not going to be bought out, it’s not going to relocate and it gives us a cushion during economic downturns ... ” Sen. Richard S. Madaleno Jr. said of the federal government. ‘‘While I think the national economy has not bottomed out, the state economy is driven by so many different factors ... that it’s hard to see things getting much worse.”

Maryland is better off than most states, echoed Franchot, because it houses numerous federal institutions, a leading health care research facility at Johns Hopkins University, a top-flight university system and the third-highest per-family income in the country, according to the latest U.S. Census (Connecticut is first, New Jersey second).

‘‘We continue to have strong economic bones in Maryland, but we’re definitely hobbled by the national economy, which is limping at this point,” he said.

But if revenues continue to plummet and the slots referendum fails or doesn’t generate the anticipated revenues, lawmakers may have to consider reprioritizing key programs in education, health care or public safety initiatives, said Madaleno (D-Dist. 18) of Kensington.

‘‘One of the things we did during the special session was take a two-year hiatus for Thornton to try to get over this hump,” he said of the $1.3 billion education funding plan. ‘‘Especially if the slots referendum doesn’t pass, my fear is we might have to go back and revisit some of those decisions so it’s not just a hiatus, but so those become permanent decisions.”

That could mean taking a second look at drastic measures like changing health care eligibility guidelines, redistributing sales tax revenues dedicated to road projects or even releasing prisoners from jail early to save money, Madaleno said.

And because no lawmaker wants to tackle such heavy measures in an election year like 2010, the next legislation session could be rocky.

Official revenue estimates are not due until September, when the state’s fiscal condition is expected to become clearer.

House Speaker Michael E. Busch (D-Dist. 30) of Annapolis isn’t sounding the alarm yet, partially because the state has more than $1 billion in reserves.

‘‘Hopefully, we’ll be able to balance the budget next year and still have a reserve fund there and fund the priorities we want to undertake,” he said. ‘‘I don’t see us being in that position yet to start talking about draconian cuts.”

Staff Writer Sean R. Sedam contributed to this report.