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As county leaders grapple with imposing budget cuts, they also face an additional burden — the highest unemployment rate Montgomery has seen in almost two decades.

The county's unemployment rate for February reached 5.1 percent, up from 4.6 percent in January, according to data released Friday by the state Department of Labor, Licensing and Regulation. Although the county's unemployment figure is still well below the state's February rate of 7.2 percent, it is the highest level the county has seen since 1990.

"The good news is, even though the [county's unemployment rate] is going up, it's still the lowest in the state, and one of the lowest in the region," said David Platt, the county's chief economist.

Unfortunately, the good new is also the bad news, with state leaders signaling to the county that it can expect less state aid and bear more of the brunt of balancing the state budget.

Like many jurisdictions in the region, the county has been hurt by an economic recession marked by a declining housing market, rising unemployment and less consumer spending.

Fewer people working means less income generally and fewer houses bought and sold, all leading to less tax revenue for county coffers from income, property and transfer and recordation taxes.

The declining revenues coupled with additional cuts coming from Annapolis lawmakers led County Executive Isiah Leggett (D) to warn of the possibility of additional reductions to balance the county's budget.

In a meeting with the media this week, Leggett repeated his months-long mantra that flexibility in balancing the budget is gone.

Some of the areas that were used in the past to help balance the budget, including the reserve fund, early retirement, position freezes and retiree health-care benefits, already have been mined for savings, Leggett said.

Leggett's budget proposal for July reduces the county's reserve fund by 1 percent, eliminates 400 jobs, puts off the health benefit payments and includes an ambulance fee to close a $520 million budget gap.

A conference committee of state lawmakers is working this week to reconcile House and Senate versions of the state budget, which would cut between $40 million and $60 million in proposed state aid to the county. The money being targeted is income tax revenue, education funds and highway user revenue.

The final version of the state budget is likelier to take more of the money from the counties' highway user revenues than include the income tax reductions, Sen. Richard S. Madaleno Jr., chairman of the county's Senate delegation, said Monday.

A benefit of dipping into the highway user funds is that bonds can be used for projects for which the highway user revenue typically pays.

"There are projects you can rearrange with highway user [funds] that you can't by just skimming money off the top," Madaleno (D-Dist. 18), of Kensington, said.

Leggett had estimated the county's state aid reductions to reach the upper-$30 million range. A Maryland Association of Counties plan had the county losing between $18 million and $22 million in state money.

Leggett, who already has presented his initial budget proposal, will have to find areas in the county plan to plug the holes created by the state cuts and submit the proposed amendments to the council. To offset some of the state cuts, Leggett has requested a $94 million maintenance-of-effort waiver from the state school board.

Current law requires counties to spend at least the same amount of funding per pupil from year to year. A decision on the waiver is due May 15.

"If you look at the magnitude of the hole we're trying to fill, it would be the equivalent of getting rid of three whole departments, which gets you into the $50- to $75 million range," said County Councilman Michael J. Knapp (D-Dist. 2) of Germantown. "Of course that's not the strategy, but that's how big the number is. None of the potential solutions are pleasant: Do you do furlough days? Do you delay all capital projects for two years?"

With the statewide outlook worsening, debate over a proposed ambulance fee could resurface in the council, Leggett said.

"I think people can begin to appreciate the challenges we have," Leggett said. "We can't look [at the fee] in isolation this year. You can have a [balanced budget] without this, but it would require you to do things that are far worse to make up the difference: either a tax increase or much deeper cuts in service."

Council President Philip M. Andrews (D-Dist. 3) of Gaithersburg has staunchly opposed the fee. But six council members were amenable to the idea in December, Knapp said.

"We were open to the fee if the administration would do the adequate community outreach necessary for residents to understand the policy," he said. "If they can show us over the next month or so that they have done that, then I think it's possible because it was possible in December."

The council is due to vote on the county budget May 21.

Staff Writer Douglas Tallman contributed to this report.