By Rolando Garcia
ANNAPOLIS – Despite the state’s doom-and-gloom budget predictions, Gov. Robert Ehrlich’s administration is hoping an improved fiscal outlook will boost revenue and help erase the state’s 2006 budget shortfall without painful cuts.
Officials are using a conservative 4 percent projected growth in revenue to calculate future budgets, said David Roose, director of the Bureau of Revenue Estimates in the Comptroller’s office. But with the economy continuing to pick up, the growth could be 5 percent or higher, he said.
Each extra percent in revenue growth provides the state with a $100 million windfall.
Because the 2004 fiscal year, which ends in June, and the 2005 budget are already balanced, higher-than-expected revenues are carried over into the 2006 budget, and so a $300 million reduction to the $830 million gap is plausible, Roose said.
In March, for the first time in three years, the bureau revised its revenue estimates slightly upwards, and the trend looks likely to continue.
But lawmakers are still bracing for the worst.
Before it closed shop on Monday, the General Assembly approved a combination of accounting maneuvers, one-time revenue sources and some new fees and taxes to close more than an $800 million shortfall in the state’s 2005 budget.
But when lawmakers return next January to prepare the 2006 budget, they will face that $830 million gap, and quick fixes may not be enough.
“Despite our best efforts, we have failed to put our fiscal house in order,” said House Appropriations Committee Chairman Norman Conway, D-Wicomico.
With the defeat of the two major revenue initiatives – Gov. Robert Ehrlich’s slot machine proposal and House Democrats’ $1 billion tax package – the Assembly passed a $23.7 billion budget that put off for a year the state’s day of reckoning with its long-term fiscal woes.
If cuts become necessary, first on the chopping block will likely be aid to local government and Medicaid funding, administration officials say.
“When you’re cutting, you go to where the money is,” said Neil Bergsman, budget analysis director for Ehrlich’s Department of Budget and Management.
Called “fund transfers” in budget parlance, many of the accounting maneuvers employed to balance the state’s books this year were actually cuts to local governments. Ehrlich diverted to the state’s general fund $100 million in highway money and $70 million in park funds earmarked for counties and cities. Local governments lost $250 million in the 2005 budget.
These cuts could be repeated next year and local officials are worried.
David Bliden, executive director of the Maryland Association of Counties, said 13 of the state’s 23 counties had to raise taxes last year, and the rest dipped into emergency funds.
Highway maintenance projects are being delayed and recreation programs cut. Further state reductions could endanger basic services such as police and fire protection, Bliden said.
“(County governments) are where the rubber meets the road in terms of basic services,” Bliden said.
The most crippling cuts may lie ahead – one proposal would require counties to pick up the tab for school teacher retirement. For Prince George’s County, that means a $60 million cut. For Harford County, that would mean scraping together $18 million from its $520 million budget, most devoted to education and off-limits.
“This year was bad, next year will be a train wreck,” said Merrie Street, spokeswoman for Harford Executive James Harkins.
Health care for the poor will also take a hit, and mental health programs are the most vulnerable, said Sen. Gloria Lawlah, D-Prince George’s.
The most expensive item on the Medicaid budget is aid to seniors in nursing homes. The budget crunch may force the state to trim payments to nursing homes. While seniors will not be evicted, the nursing home workers who change diapers and bed sheets will have to live with lower salaries, Lawlah said.
Health coverage for low-income children is the fastest-growing portion of the Medicaid budget, and cuts may force the state to raise eligibility requirements and put thousands of uninsured children on waiting lists, Lawlah said.
The state’s budget structure also influences which programs get the ax. About 60 percent of the budget cannot be cut unilaterally by the governor. The remaining discretionary spending is where Ehrlich will focus, Bergsman said.
The $840 million the state spends for higher education is the largest discretionary item in the budget. After cutting $130 million from colleges and universities last year, the administration will be reluctant to undertake further reductions, Bergsman said.
However, Ehrlich’s commitment to fully fund the Thornton public school reform plan, combined with other mandated spending, could mean the famine days for higher education are not over yet.
“When you fund Thornton, and then fund the mandates, there’s just pennies left for everything else,” Lawlah said.
When the Assembly returns in January, the pressure will be on to find new revenue, but the political stalemates that deadlocked the 2005 session remain – Ehrlich vows to veto sales or income tax hikes, and House Democrats have said they will not pass slots unless Ehrlich approves a revenue source.
Even if slots passes next year, revenues will not come in time to address the 2006 shortfall. However, the state has $520 million in its Rainy Day Fund that Ehrlich could tap to tide the state over until slots revenues kick in, Bergsman said.