The Maryland state budget is facing a shortfall and it's not just pennies, nickels and dimes, either. According to the latest estimates, revenue in this fiscal year will be $432 million below projections and next year could see a $1 billion shortfall. The shortfall reflects economic conditions in Maryland that are less rosy than originally projected.
The following table shows the biggest changes in the 2009 projections.
|Revenue Source||2008 Actual||Original 2009||Revised 2009||Difference|
|Income Tax||$6940 million||$7445 million||$7310 million||-$135 million|
|Sales Tax||$3675 million||$4053 million||$3783 million||-$265 million|
|Lottery||$497 million||$511 million||$495 million||-$16 million|
|Tobacco Tax||$376 million||$451 million||$433 million||-$18 million|
For the most part, revised projections continue to show an increase over 2008. the Maryland economy is still growing, albeit slowly and the changes in the tax rates during the special session are having an effect. Nevertheless, it is clear that changes are going to have to be made.
It's also clear that there is no political room for additional taxes of any kind. Changes to the state budget are all going to have to come on the expenditure side. For 2009, the projected surplus of about $250 million will go a long way toward closing the revenue gap. Delays in filling vacant positions and deferring some construction until next year could close the remainder of the gap for this year.
Next year will be harder. It's clear that state aid to local governments is going to be reduced below the projected figures even as local governments struggle to balance their own budgets. The $400 million that Governor O'Malley devoted to school construction this year will be much smaller next year and the state is likely to push some of the cost of teacher pensions onto the local governments that employ the teachers. State aid to higher education might be trimmed below projections and we could see modest tuition increases at most state universities. State employee pay raises will be curtailed and there could be some modest rollback in efforts to help those Marylanders without health insurance.
The real action and pain, though, is going to come at the local level. Big counties like Montgomery and Prince Georges are already looking at shortfalls of hundreds of millions of dollars. With Maryland's three-year property assessment cycle, local governments, which have already been suffering from reduced transfer tax receipts, are also going to see the first effects of the real estate bust on property tax receipts. And the certainty of reduced state aid to local governments will just make matters worse.
So keep your eyes on those local governments - that's where the real action on the Maryland budget shortfall will come.