New Maryland governor wants to close budget gap with spending cuts

Reuters News
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Posted: Jan 22, 2015 4:38 PM

WASHINGTON (Reuters) - Maryland's newly installed Republican governor wants to slam the brakes on spending growth and rely on fund transfers to close a gaping budget hole without raising taxes.

"I am extremely proud to introduce a structurally balanced budget that puts our state on sound financial footing," said Governor Larry Hogan in unveiling his budget proposal on Thursday. "But this is just a start."

Maryland leaders have been racing to stop the bleeding in recent months by revising revenue projections and making spending cuts. In his final days in office, outgoing governor Martin O'Malley, a Democrat, helped enact a 2 percent reduction across state agencies along with spending cuts in personnel, higher education and mental health.

The measures were not enough. The National Conference of State Legislatures reported on Wednesday that a "downward revenue revision of nearly $200 million and estimated spending shortfalls of nearly $300 million in the current year place the state in an estimated negative cash position of $291 million."

For the current fiscal year ending on June 30, the state has a total shortfall of $423 million, according to Hogan's budget presentation. The estimated budget gap for the following fiscal year is $802 million.

The largest single contributor to this fiscal year's shortfall is Medicaid, the health insurance program that is partly subsidized by the federal government. Medicaid has seen higher enrollment than budgeted, as well as more expensive Hepatitis C drugs and a decline in the revenue from the tobacco tax it uses for the program, according to Hogan's presentation.

To help close Maryland's budget gap, Hogan proposed cutting in half an increase in the rates paid to Medicaid healthcare providers and using funds from another insurance program.

He would also cut state aid to local governments by $15 million and, at the same time, have Maryland borrow $100 million in local income taxes.

To help bring fiscal 2016's budget in balance, Hogan would like to cut provider rates and other parts of the program, find more savings in employee costs, and reduce aid to local governments along with some education funds. Altogether, he said, that would halve projected spending growth to 1.5 percent.

Hogan also suggested finding relief in the state's outstanding bonds, by incrementally reducing its borrowing program. Debt service payments would stay on track with projections this fiscal year and next, and then begin falling in fiscal 2017.

(Reporting By Lisa Lambert; Editing by David Gregorio)