By DYLAN WAUGH
ANNAPOLIS (March 12, 2009)—Gov. Martin O'Malley said Wednesday the state will need to cut $516 million from next year's budget and may have to reconsider recently-scrapped plans to lay off state employees in light of plummeting tax revenue projections.
O'Malley said he hopes to avoid layoffs but wouldn't rule them out as a possibility.
"We're looking at all options," O'Malley said.
Three weeks ago, O'Malley scrapped plans to lay off 700 state employees, make deep cuts to public schools and keep community college funding level in anticipation of federal stimulus money flowing into the state.
Senate President Thomas V. Mike Miller Jr., D-Calvert, and House Speaker Michael Busch, D-Anne Arundel, both stressed the need to avoid layoffs.
"We're going to do everything we can to keep people in the workforce," Busch said.
The pair mentioned more state employee furloughs and cuts to higher education as possible ways to reduce spending. Highway transportation funding, money for land conservation and grants to counties could also be subject to cuts, Busch said.
Earlier this week O'Malley repeated his pledge to keep tuition frozen at all state universities—a policy which may now be reversed.
Federal stimulus money dedicated for K-12 education and state Medicaid contributions will be protected from cuts, Busch and Miller said.
Tax increases are not considered a viable option to closing the budget gap.
"The last thing that we want to consider is a tax hike and the next-to-last thing we want to consider is layoffs," Busch said.
The cuts will all be made to next year's budget since the stimulus money will make up for this year's shortfall, said Secretary of Budget and Management T. Eloise Foster.
"We will be fine in fiscal year 2009," Foster said.
The state Board of Revenue Estimates announced Wednesday afternoon a $1.1 billion shortfall in tax and other revenue projections for the next two fiscal years. O'Malley had predicted $600 million in revenue write-downs in previous budget projections over that time, leaving the state with the $516 million shortfall.
Of the $1.1 billion in write-downs, $866 million is due to declining individual income tax receipt projections. Falling sales tax earnings make up most of the rest.
State Comptroller Peter Franchot called the numbers "truly staggering, but not truly surprising" in light of the current economic climate.
"Maryland is not immune to the economic crisis that has rocked the nation," Franchot said.
The shortfall announcement helped revive the debate over the state's role in financing teacher pensions, which are expected to cost the state $760 million next fiscal year and $950 million in 2011.
O'Malley has allocated federal stimulus money for the state to continue paying for teacher pensions for the next two years. But Miller has repeatedly advocated making counties responsible for at least part of the teacher pension costs.
"We cannot continue in this manner. We have no control over it," Miller said. "Somehow there's got to be the political will to make the right decision."
Miller has proposed legislation to shift some future costs to the counties, but said the stimulus money O'Malley has dedicated to covering teacher pensions makes it unlikely his bill will pass.
Both Miller and Busch said community colleges should be protected from the pending budget cuts.
"They are our first line of defense in terms of education," Miller said.
The current fiscal crisis has Miller and Busch calling for a deeper look at state spending.
Early in the afternoon the pair of presiding officers announced the creation of a joint legislative workgroup to study the amount of money the state sends to local governments. The panel of seven delegates and seven senators will commence meeting following the 2009 session.
Miller thinks spending also needs to be addressed before the session concludes next month.
"This is, quite frankly, the time that the General Assembly is going to have to address structural imbalance and sustainability for the future," Miller said. "If we don't do it now in these next four or five weeks, we will have forfeited a huge opportunity."
House Minority Leader Anthony O'Donnell, R-Calvert, also sees a need to address future state spending.
"We came into the session with expectations that we needed to fix our structural deficit and our structural funding problems," O'Donnell said. "Then we got federal stimulus money and we acted like the problem went away, and now the problem's back."
Last week, the Board of Public Works announced $82 million in cuts to this year's budget, including eliminating 894 state jobs, all but two of which were vacant. In October, the board cut $345 million from this year's budget.
O'Malley is expected to submit a supplemental budget soon that reflects the revised revenue projections and includes cuts to expenditures until now considered safe.
"There's nothing left (in the budget) that isn't important," O'Malley said.
Foster put it a different way.
"We're down to the meat and potatoes now," she said.
Capital News Service Staff Writer Erich Wagner contributed to this report