Maryland faces $1b budget shortfall as revenue slows

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Local,Rachel Baye

ANNAPOLIS -- Maryland budget officials predicted a $1 billion budget shortfall for the coming fiscal year as they painted a bleak economic outlook amid slower-than-expected growth.

 

The $1 billion hole in the state's $34 billion budget for fiscal 2013 is a stark difference from the $990 million surplus at the end of last fiscal year and the predicted $96 million surplus at the end of fiscal 2012, and ends June 30. State lawmakers have been looking at raising taxes and fees, as well as adding new taxes, to fill the looming gap.

"Economic growth, where we find it, is pretty weak. Revenue growth is slower than expected, and expenses could more than consume the growth that we are experiencing," Warren Deschenaux, director of the Department of Legislative Services' Office of Policy Analysis, told a joint hearing of four Senate and House of Delegates committees.

The revenue coming in is not enough to cover the state's spending commitments, he said.

Revenue through September is up by about 4.6 percent, but is expected to grow by only 2.8 percent in fiscal 2013, according to data from the Board of Revenue Estimates, which accounts for the $1.012 billion shortfall.

Employees' pensions are also underfunded by about $18 billion, according to senior policy analyst Dylan Baker.

Though things could be worse -- last year officials were predicting a budget gap twice as large as the $1 billion they are predicting now -- lawmakers are still left with some pressing questions, Deschenaux said.

"Can we really afford to wait two more years to get to a structural balance?" he asked the committee members. "If we're going to eliminate that deficit and going to do that quickly or slowly, can we accomplish the rest of the challenge exclusively through budget reductions?"

Gov. Martin O'Malley has begun looking to tax increases as a way to fill the budget hole. Earlier this week he voiced support for a 5-cent increase in the state's 23.5-cent gasoline tax every year for the next three years, the first increase in the state's gas tax since 1992, as a way to cover some of the state's transportation needs.

The Senate Budget and Taxation Committee this summer reviewed a swath of potential new taxes that would apply to consumer services, such as accounting and landscaping, as well as snack food and prescription drugs.

As the federal government scales back, Maryland could lose grants and residents employed with the federal government or with government contractors could lose income or their jobs -- all of which hurts the state's revenue, Deschenaux warned.

Federal decisions also could hurt the state's triple-A credit rating, he said, just like it could affect the credit ratings of other states.

The state's employment growth weakened in late 2010, said policy analyst Theresa Tuszynski. Although unemployment claims have fallen in 2011, the drop is slight.

rbaye@washingtonexaminer.com

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Rachel Baye

Staff Writer - Education
The Washington Examiner