ANNAPOLIS – The unusually high tax revenues that will finance Gov. Robert L. Ehrlich’s proposed budget increase may disappear, leaving the state with close to a $1 billion shortfall in 2008, a top legislative analyst told Senators Thursday.
“The state is doing very well right now,” said Warren G. Deschenaux, director of the Office of Policy Analysis. “But, our current level of spending is very difficult to sustain over the long haul.”
Deschenaux said the thriving real estate market in Maryland has brought in more tax revenue this year and helped fuel an expected $1.2 billion surplus.
But, the market is expected to “cool off” and the state’s revenue growth rate will return to its normal levels, Deschenaux said at the Senate Judicial Proceedings Committee budget hearing.
In FY2007, Deschenaux said, Ehrlich’s “bullish” spending in his proposed $29.6 billion budget will outpace the state’s revenue growth by around $700 million.
That number will grow to $982 million in FY2008. But, by dipping into reserve funds allocated by Ehrlich, that total could shrink to less than $300 million.
Henry P. Fawell, Ehrlich’s spokesman, called the criticisms by legislators and legislative analysts “amusing.”
“These are the same legislators that spent the state into a deficit in 2002,” he said. “They’re trying desperately to find something to criticize.”
Maryland, which is required by law to have a balanced budget, has made up funding gaps since 2002 by transferring money from trusts, other programs and the state’s emergency funds.
Ehrlich did not have much control over many of the budget increases this year, Deschenaux said, as the governor is legally required to fully fund the Thornton education plan and other programs.
Ehrlich’s discretionary changes included the $670 million set aside for the next budget, $20 million for stem cell research, $10 million in horse racing grants, and $4 million in wage subsidies for the film production industry.
Deschenaux warned that some other programs are vastly under-funded in Ehrlich’s budget and could become long-term problems for the state, calling retiree health benefits the “next Thornton” in terms of funding challenges.
Health care benefits for all current state employees and retirees will cost the state $20.4 billion in coming decades, Department of Legislative Services experts estimate. But Deschenaux said the governor is not including enough money in his current budget to meet future needs of the program.
Fawell disagrees. “The governor has made a substantial investment to help our families,” he said. “It’s a long-term process.” The state is also faced with expensive shortfalls in funding to workers’ compensation, pensions, and the geographic cost of education index, which grants additional money to school districts in certain regions in the state, the analyst’s report said.