Va. faces budget facts, while Md. dreams on

Maryland Gov. Martin O’Malley is relying on the federal government and a series of funding shifts to cut $2 billion from the state budget through creative accounting that critics say will lead to higher taxes in coming years.

O’Malley’s $12.7 billion budget proposal is counting on $1.4 billion accrued from federal stimulus money, revenue from slot machines that have not been set up, and transfers from a construction fund to help make up the $2 billion gap.

Virginia, meanwhile, is facing a $4.2 billion gap through mid-2012, with little hope of tapping the sort of stopgap measures that allowed legislators to avoid the most onerous reductions in years past. This year, lawmakers will have to face fiscal reality head on.

Lawmakers in the Old Dominion will be looking to cut since new Gov. Bob McDonnell says he will veto tax increases. The state cannot borrow any more money through bonds — as Maryland is doing — since it has reached its self-imposed cap. Stimulus money will dry up in the second half of the budget cycle.

O’Malley’s budget wagers on nearly $400 million in stimulus funds tied to the House’s health care bill. The future of the legislation is in doubt after Massachusetts Republican Scott Brown’s victory in a special election for the late Democratic Sen. Ted Kennedy’s Senate seat. O’Malley said he has no backup plan.

He also is relying on $85 million in slots revenue, although lawmakers have said they don’t expect slots profits to roll in until 2012. Only one of the state’s five slots sites is slated to open in the next few months.

O’Malley plans to balance another $1 billion of Maryland’s gap by transferring money between bank accounts and selling bonds to account for emptied funds — a temporary solution that doesn’t dissolve the structural deficit.

House Minority Leader Anthony J. O’Donnell called that strategy “pulling the wool over the citizens’ eyes.”

“That is mortgaging our children and our grandchildren’s future,” he said. “It’s very disingenuous to say it’s an election year so we’re not going to raise your taxes this year, knowing darn well they are casting the die for guaranteed tax increases in significant amounts the next year.”

Substituting debt for cash to balance the budget is not new in Virginia, but state legislators probably won’t have that option this year.

A year ago, facing a $3.7 billion budget shortfall, the Virginia General Assembly passed a budget that saved $350 million by replacing up-front funding for capital projects with new debt. The practice has allowed lawmakers to shift some of the state’s costs into the future and forestall some spending cuts, while still boasting of passing a balanced budget.

Now facing a $4.2 billion gap through mid-2012, the General Assembly and governor will rely almost solely on cuts to close that shortfall, slashing into education, health care and public safety.

Stimulus funds will offer Virginia little help in balancing its budget. The $5 billion that came to the state will be exhausted by fiscal 2012, the second year of the budget.

Maryland will face a similar situation next year, as the stimulus spigot dries up. Down the road, the state will have millions of dollars in bonds to pay back.

“They are gonna borrow and beg and steal from the fund balances and do whatever they can to get through this year, and you and I and all citizens of Maryland are gonna get socked next year,” said Senate Minority Leader Allan H. Kittleman.

O’Donnell said the only real solution is to stop relying on federal money.

“Stop relying on rich Uncle Sam’s bailouts and manage the state budget in a way that’s gonna fix the problem long-term,” he said.

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