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Gov. Martin O'Malley chipped another $362 million off Maryland's mega-deficit this week, with big cuts in higher education and health care.

Yet these necessary moves are modest next to what's coming in two months: A new budget that must be leaner by $1.8 billion to achieve equilibrium between spending and shrinking tax collections.

More across-the-board belt-tightening is inevitable — and that may include sacrosanct K-12 education aid. Everyone should bear some of the downsizing burden, including public schools, which have seen state support grow by a stunning $700 million in just three years.

It doesn't look like there is any way to avoid the pain O'Malley will have to inflict on state and local programs in January. The state comptroller's latest report details another month of declining tax receipts. The only good news: the state's revenue fall-off is slowing.

Money from the sales tax fell 5.4 percent in September but the "relatively mild monthly decrease in gross receipts" of minus 6.2 percent "represents the smallest decline since March," Comptroller Peter Franchot noted.

For now, that will have to pass as optimism.

O'Malley has managed the downturn in state spending quite well. He hasn't made any destructive or harsh moves. He has tried to preserve jobs.

But he has refused to impose wholesale spending reductions in anticipation of continuing weak tax collections.

Thus, Maryland has undergone a modified version of the Chinese water torture: Every two or three months, the governor announces another round of spending cuts for state agencies. Drip. Drip. Drip.

Yet it has been clear for over a year that much stronger action is needed. O'Malley, though, has been content to wait till the official revenue numbers come out and then trim spending a bit.

That has added up to $1.1 billion in budget cuts since the fiscal year started July 1 — mainly one-time savings, such as delays in agency spending. Once the recession ends, this spending will resume.

O'Malley also has used one-time tax pick-ups to close his immediate budget gap — such as the $129 million tax payment from the Constellation Energy-EDF nuclear power plant transaction or the $11.6 million from a tax amnesty program.

This money eased the governor's immediate difficulty but won't be available when O'Malley attacks the more ominous $1.8 billion budget deficit in January.

The same is true of O'Malley's $25 million raid on the state's rainy day fund this week as well as the extra dollars he took from reserve accounts and funds he moved from one agency to another. You can only spend that money once. It won't be available next year when O'Malley scrambles to avoid calamitous program cutbacks.

Maryland's governor is good at putting a positive spin on bad news. He reminds us that he has cut $4.6 billion and eliminated 3,300 positions in just three years. What he doesn't say is that much of these savings aren't permanent and most of the job cuts involve vacant positions.

Today's general fund budget stands at $13.1 billion — far less than what the state spent three years ago. But that's due to the sharp impact of the recession on Maryland's tax revenues, not any commitment by O'Malley to shrink the size of government.

Indeed, O'Malley believes in expanding worthy social programs for both the poor and the middle class.

That's why he called a special session of the legislature two years ago to approve a record tax package. The extra money was used to fuel more growth in government services rather than erase Maryland's chronic "structural deficit" — the wide gap between what the state takes in through tax collections and its ongoing programs.

Compounding O'Malley's dilemma is next year's statewide elections. Don't look for tax increases in 2010, though there's an urgent need for more transportation funds via a higher gas tax and higher toll fees.

A general increase in fees charged by the state for a variety of services and licenses could also net a considerable amount to stave off the worst of the budget cuts.

But that isn't likely to happen. Legislators and O'Malley won't take the political risk. Today's officeholders rarely do.

Slot machines offer a ray of hope — if O'Malley and his allies press hard to clear the way for slots in Baltimore city and Anne Arundel County. If the governor can get both facilities open by this time next year, it could mean as much as $250 million in added state revenue.

Extra federal funds from health care reform also could add as much as $364 million in short-term aid to Maryland. That would help in 2010, but the state's health costs in future years could balloon as it covers many more Medicaid recipients.

Much is riding on how the governor puts together his next budget — including his ability to get re-elected without confronting major challenges in the primary and general election.

Local governments are particularly vulnerable to downsizing moves by the state. For instance, localities have avoided painful teacher pension issues thanks to the state's abundant generosity. That could change next year.

O'Malley may have no choice. It could be the most equitable way to spread the pain more broadly so he doesn't have to impose crippling cuts on state agencies in 2010.

Barry Rascovar is a State House columnist and a strategic communications consultant. His address is brascovar@hotmail.com.