Maryland faces years of hefty budget gaps

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Photo - Maryland Gov. Martin O'Malley, left, and Speaker of the House of Delegates Michael Busch (D-Anne Arundel).
Maryland Gov. Martin O'Malley, left, and Speaker of the House of Delegates Michael Busch (D-Anne Arundel).
Local,Maryland,Rachel Baye

Maryland faces hundreds of millions of dollars in budget gaps in the coming years, even after raising taxes and taking other recent steps to boost sluggish revenue growth.

State lawmakers closed a $1.1 billion budget deficit at the start of the current fiscal year by raising income taxes on residents earning at least $100,000 a year and forcing counties to pay for rising teacher pensions. On Election Day, Maryland voters approved a gambling expansion, a move officials promised would add millions of dollars to the state's bottom line.

But after all that, Maryland still has a $27 million hole going into fiscal 2014 -- a gap that would exceed $400 million if not for a surplus being carried into next year that resulted partly from the tax hikes -- and a $385 million gap going into fiscal 2015. To put that in context, raising the state sales tax by half a cent would raise $350 million in revenue, said Warren Deschenaux, director of the Maryland General Assembly's Office of Policy Analysis. The state also faces gradually declining shortfalls every year through fiscal 2018, which is projected to have a $152 million gap.

The budget picture
Fiscal year 2012 actual 2013 approximate 2014 baseline 2015 estimate
Opening fund balance $990m $551m $482m $0
Total revenues with fund balance $15.5b $15.6b $16.1b $16b
Ongoing spending $14.9b $15.1b $15.7b $16.3b
One-time spending $63m $23m $372m $51m
Total spending $15b $15.2b $16.1b $16.4b
Ending balance $551m $482m -$27m -$385m
Rainy-day fund balance $673m $703m $766m $798m
Structural balance -$630m -$215m -$417m -$402m

Maryland's spending has outpaced revenue since at least 2007, when Gov. Martin O'Malley called a special legislative session to fill a structural deficit -- the amount by which Maryland was outspending its revenues -- of $1.7 billion. That session resulted in a 1-cent increase in the state sales tax to 6 cents

and a temporary millionaire's tax.

The $417 million structural gap that lawmakers face this year is the lingering result of the deficit O'Malley faced when he took office, said O'Malley spokeswoman Raquel Guillory.

The coming year's shortfall will mean more cuts, Guillory said. "There are no discussions of additional revenue increases at this time."

With residents still smarting from this year's tax increases, lawmakers do not want to raise taxes further to balance the budget, a senior source within the General Assembly said.

As a result, Deschenaux's office has urged lawmakers to cut ongoing spending commitments by at least $200 million in the upcoming budget cycle. That could create a surplus of nearly $200 million at the end of fiscal 2014 that would slash fiscal 2015's shortfall in half without raising taxes.

The second $200 million likely can come by way of accounting tricks, like delaying the state's commitment to put $50 million into its reserves, Deschenaux said.

The hard part of filling the budget hole is that state lawmakers have already raised all the taxes that are going to bring in large amounts of money and are left with having to make numerous decisions that each only adds tens of millions to the budget, said Neil Bergsman, director of the Maryland Budget & Tax Policy Institute. He suggested considering an increase in the corporate income tax as one possibility, the tobacco tax as another.

rbaye@washingtonexaminer.com

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Rachel Baye

Staff Writer - Education
The Washington Examiner