Federal cuts to hit state hard, budget analyst warns lawmakers ANNAPOLIS — Maryland faces a $1.1 billion budget gap next year, but the state’s economy is expected to get worse with cuts in federal spending.
“As long as we have that structural deficit hanging out there, we are going to have a hard time convincing anyone that we have the resources to endure any change in the federal-state relationship,” Maryland budget analyst Warren G. Deschenaux told state senators Tuesday.
| More taxes in store? |
| The Maryland Senate Budget and Taxation Committee examined the effect of assessing sales taxes on services such as auto repair and cable television as the state looks to close an estimated $1.1 billion budget gap in fiscal 2012. The committee also discussed the potential for assessing a sales tax on major Internet vendors, such as Amazon.com, for items sold to Maryland consumers. |
Maryland will have to find a way to be pretty convincing, if the state aims to retain its triple-A bond rating and continue borrowing money at lower interest rates, Deschenaux added.
Moody’s Investors Service placed Maryland on its credit watch list for a potential credit downgrade, depending on how Congress resolves an ongoing battle over raising the federal debt ceiling and cutting the nation’s long-term deficit.
But regardless of how the debt fight plays out, Maryland — with its heavy reliance on the federal government for jobs and funding — stands to lose.
“The bottom line is, the states are likely to lose under almost any scenario,” Deschenaux told the Senate Budget and Taxation Committee.
The categories of federal spending that are consistently on the chopping block as part of a deal that would raise the debt ceiling are discretionary spending — which is where a large portion of state funding comes from — and spending on entitlement programs such as Medicaid.
Nearly half of the state’s Medicaid budget is paid for with federal money. And nearly half of Maryland’s $9.1 billion in federal funding is directed to the health care program for the poor.
Lawmakers pressed their chief budget analyst for advice on how to deal with the impending budget problem.
“Once you get downgraded, is it hard to …” Sen. Edward J. Kasemeyer, D-Baltimore and Howard counties, said, trailing off.
“No, you just have to figure out whatever it is that you did wrong and stop doing it,” Deschenaux interjected.
Deschenaux recommended that lawmakers put more money in the rainy-day fund and plug the state’s structural deficit, which stands at $1.1 billion for fiscal 2013, according to the most recent estimates.
The state is expecting to take in more revenues as tax collections have picked up this fiscal year by roughly 8.3 percent over last year, mainly from an increase in personal income tax revenues, according to the comptroller’s office. Maryland is expecting to post a surplus in personal income tax revenues of $300 million over original estimates in September.
But any new funding might be offset by potential deficiencies, officials said.
In the meantime, Deschenaux said, “We just have to wait and see.”
