ANNAPOLIS — State officials patched together a balanced budget for next year with a mix of spending reductions, cuts to local governments, minor tax increases and a raid on state funds not supposed to be used for day-to-day government operations.
But they did nothing to address Maryland’s long-range financial problems and are likely to face a budget mess when they return to the State House in January.
The budget is balanced for fiscal 2005, which begins July 1. But a shortfall of about $800 million is projected for fiscal 2006, and legislative analysts predict that it will increase to $1 billion the following year without new revenues or deep spending cuts.
Lawmakers rejected Gov. Robert L. Ehrlich Jr.’s proposed solution of bringing slot machines to Maryland, though they approved some tax increases that will have an effect on future budgets.
As a result, legislative leaders say, the easy cuts have been made and only painful spending reductions are left to cover future deficits.
“Ladies and gentlemen, the pain is not going to go away,” Sen. Ulysses Currie, Prince George’s Democrat and chairman of the Budget and Taxation Committee, told senators last week as they adopted the budget for the coming fiscal year.
Mr. Ehrlich, a Republican, and the legislature also have almost exhausted the supply of money in special funds scattered throughout the budget, which were raided the past three years to cover deficits.
Mr. Ehrlich said he already is discussing with staffers the budget they will submit next year to the legislature.
“It’s way too early for decisions,” said James “Chip” DiPaula Jr., the administration’s budget secretary. However, Mr. DiPaula acknowledged that he already has submitted an outline for a balanced budget, and that the governor has given staffers more direction on where he would like to go.
One obvious target is funding for local governments, and county and municipal officials are bracing for more big cuts in state aid that they say will force them to increase local taxes or cut services to constituents.
Mr. Ehrlich also has warned that the state will have to do something to slow the growth of Medicaid, which with public school funding is the major source of the growth of the state budget.
“We believe there are going to be severe cuts” in social programs, said House Speaker Michael E. Busch, Anne Arundel Democrat. “We don’t think that’s the right way to go in governing.”
Mr. Busch predicted that prescription drug coverage and nursing home care for older Marylanders will be reduced as part of the effort to control Medicaid costs.
Local governments took a big hit the past two years and Maryland Association of Counties Executive Director David S. Bliden said his members expect more cuts for fiscal 2006.
“County elected officials are frustrated and disappointed with the state’s failure to reach a consensus for solving its fiscal mess,” he said. “What it means is that county officials will again be called upon to make the tough decisions that were avoided in Annapolis. The only consensus that seems to be emerging in Annapolis is a shift-and-shaft policy for the counties.”
Thirteen counties raised taxes last year and the rest had to dip into reserve funds to make up for lost state aid, he said.
James P. Peck, director of research for the Maryland Municipal League, said Maryland’s 102 towns and cities expect the same fate as county governments. The choice for municipalities may come down to property tax increases or reductions in services.
Funding for higher education was reduced substantially in Gov. Parris N. Glendening’s last budget and in Mr. Ehrlich’s first budget, a year ago. Colleges and universities did not suffer cuts this year, but they also did not begin to recoup previous losses.
Many lawmakers expect higher-education cuts next year that will result in more tuition increases. They passed a bill to impose a temporary 10 percent surcharge on the corporate income tax, put the money into higher education and limit tuition increases to 5 percent a year for three years.
Mr. Ehrlich plans to veto the bill, but said Thursday that he thinks that he can find money to increase higher-education aid next year.
There is one bright spot on the budget front. Maryland has avoided dipping into its “rainy day” fund, which totals more than $500 million. The governor and legislative fiscal leaders are reluctant to tap that fund because it could cost the state its coveted AAA bond rating.
The governor also is hoping that state tax revenues, stagnant throughout the recession, will soon get back to more normal growth levels.
“We are fortunate that Maryland has a vibrant economy and a very strong work force,” Mr. DiPaula said. “We are cautiously optimistic that the revenue outlook may be improving.”
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