Maryland May Face Spending Cuts This Year as $1B FY '10 Deficit Looms

WASHINGTON - Maryland could face spending cuts this fiscal year to make up for a nearly $1 billion revenue shortfall that is expected in fiscal 2010, the Legislature's chief financial adviser warned yesterday.

"It'll be incumbent on the governor to take what actions are necessary ... to help bring spending down to correspond to what we think will be coming in," said Warren G. Deschenaux, director of the state's Office of Policy Analysis.

How much Gov. Martin O'Malley will have to cut has yet to be finalized because the first quarter of fiscal 2009, which began July 1, is barely over and the revised fiscal 2009 revenue forecast will not be completed until next week, Deschenaux said.

The forecast is being revised by Deschenaux's office in concert with the comptroller's office and the Department of Budget and Management. It is expected to show weaker-than-expected tax collections despite income and sales tax increases already put into place over fiscal 2008, as Maryland - with its triple-A credit just affirmed in July by all three rating agencies - joins other states hit by the nation's beleaguered economy. Maryland's 2009 fiscal year began July 1.

"We know that we underperformed in 2008, and that our economic revenues were the ones that were pulling the collections down - income and sales taxes," Deschenaux said. "If we extrapolate from that we can expect we would be bringing down the estimates for the current year, and the planning numbers for 2010 are probably overstated as well."

Maryland, along with many states across the country, face weaker tax collections and continually revised budgets in light of a nationwide economic downturn. State tax revenue was $73.5 million short of budget estimates in fiscal 2008, which ended June 30. Income and sales taxes, which make up about 80% of revenue, fell $130 million short of projections, but were mitigated by other tax collections that increased a bit more than expected.

The revenue problems come even after O'Malley and lawmakers during a special session last fall approved nearly $1.4 billion in tax increases, including on sales, income, and cigarette taxes, among others. The governor also cut hundreds of millions of dollars more from the $15 billion general fund during the course of fiscal 2008.

But Comptroller Peter Franchot said that due to the current economic climate, Maryland is "in for more bad news."

"With the books now officially closed, it is clear that whatever happens in November, we will still have a significant budgetary shortfall. Some have estimated it to be as much as $1 billion," Franchot said in a statement. "We need to get serious about the financial mess we find ourselves in."

One way O'Malley and other officials have proposed bringing in new revenue is through slot-machine gambling. Voters will decide in November whether to amend Maryland's constitution to allow 15,000 new slot machines in Baltimore, as well as in Allegany, Anne Arundel, Cecil, and Worcester counties. The governor has been banking on revenues from slots to partially fund education. Proponents of the slots say they would bring in more than $600 million annually by 2012.

O'Malley has to bring legislators a final revised fiscal 2009 forecast in December, and a final fiscal 2010 budget proposal in the spring.

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