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ANNAPOLIS — Gov. Martin O'Malley held firm Thursday against dipping into the state's "rainy day fund" or slashing K-12 education, even as the state employees union turned up the pressure on him to make significant steps toward budget reform.

Union members used the cold rains that forced their news conference indoors Thursday as a metaphor for the fiscal storm that is battering Maryland's budget.

"It is time to dip into the rainy day fund because it is raining out there, and we need some shelter from the storm," said Patrick Moran, state director of the American Federation of State, County and Municipal Employees, which represents about 30,000 state workers.

"Even if we were to wipe out our entire rainy day fund, we'd still have a lot of cutting we'd have to do," O'Malley (D) said. Officials have to make another $300 million in cuts because of the budget shortfall.

Taking from the rainy day fund would require legislative approval — something the General Assembly cannot give until it reconvenes in January.

On Wednesday, all three bond rating agencies reaffirmed Maryland's triple-A bond rating, which allows the state to borrow at the most favorable rate.

The bond rating sets the stage for the state to balance its budget in a fiscally responsible way and to maintain a rainy day fund that exceeds 5 percent of the state's general fund, as required by law, O'Malley said.

Legislation passed in 2006 set a rainy day fund target of 7.5 percent of the general fund. That has yet to be achieved.

"There were those two years ago who said we should dip into the rainy day fund, and we saw that we did the right thing at that time to protect it," O'Malley said. "And I think we still need to protect it."

Cutbacks at state mental health and correctional facilities and in juvenile services, foster care and other agencies are putting state residents at risk at a time when the economy has driven demand for services up while government support is being cut, Moran said.

Moran, joined by dozens of union members, laid out suggested budget measures that he said would produce $2 billion in additional revenue for Maryland.

"We need to look at what is more important at this time," he said. "Is it the triple-A bond rating or is it the services that the people of Maryland demand and need in these times?"

The union proposes taking more than half of the $642 million in the rainy day account.

The union also proposed continuing a 6.25 percent tax rate for individuals earning more than $1 million. Keeping the so-called "millionaire's tax," which is slated to end at the end of 2010, would garner about $100 million, according to a 2008 fiscal analysis by the Department of Legislative Services cited by the union.

Another suggestion was to require corporations operating in Maryland to report profits from subsidiaries that are often shifted to entities in other states, such as Delaware, to avoid Maryland income taxes. The combined reporting rule would have brought in $100 million to $170 million if it had been in place in 2006, according to an analysis released earlier this month by the Office of the Comptroller.

Other proposals include a 5-cent increase to the gasoline tax, an increase to the alcohol tax and taxes on various Internet sales.

The union is also calling for more wholesale changes, including an overhaul of the state's sales tax structure that reflects the move from an industrial to a service-based economy, and slashing spending on private sector contractors and consultants.

Meanwhile, state leaders are pondering whether to leave education funding untouched as they contemplate another round of budget cuts, Lt. Gov Anthony G. Brown said this week.

"We're in discussions about whether [education] is on the table or not," Brown said after a town hall meeting in Camp Springs on Tuesday night.

Brown said that he and O'Malley have been discussing options.

On Thursday, Brown (D) tempered those comments, saying it was "not likely" that K-12 education would be cut.

"The situation is so dire that we are forced to look at everything," he said. "We've fenced off K-12 education at this point."

In mid-November, O'Malley is expected to announce the seventh round of cuts during his nearly three years in office.

"It would be irresponsible to take anything off the table," said O'Malley spokesman Shaun Adamec. "That said, for the past two-and-a-half years this administration has held K-12 education completely harmless."

While a number of scenarios are being explored, O'Malley has been reticent to cut from education.

"Cuts to education, more so than most other — if not all other —agencies, have long-term implications if we start cutting at the rates that other agencies have been cut," Adamec said. "And that's why [K-12 education] has been held harmless."

Budget officials have also said that cutting school spending may force the state to give back federal aid it received in the form of stimulus dollars.

Stimulus rules require that education be funded at the fiscal 2008 or fiscal 2009 level, whichever is higher, or states would forfeit the recovery dollars.

Fiscal 2008 was the state's high-water mark for education funding after the six-year phase-in of the $1.3 billion Thornton school funding formula.

Administration officials say O'Malley has yet to lay out the specifics of the next round of cuts.

O'Malley has said he will propose nearly $300 million in cuts in order to provide a cushion for a fiscal 2011 budget that he will propose shortly after lawmakers return to session in Annapolis in January.

Already this year, state workers are being asked to take up to 10 unpaid days of leave and more than 200 state employees have been laid off. This summer, the state Board of Public Works, which comprises the governor, comptroller and treasurer, also cut $211 million in direct funding to counties to address the budget gap.

With weak corporate, individual and sales taxes, the state will face a projected $2.5 billion — and possibly larger — deficit in fiscal 2011.

Staff Writers Daniel Valentine and Alan Brody

contributed to this report.