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ANNAPOLIS — Despite depressing news about state revenues heading into the 2009 General Assembly session, legislative leaders said Tuesday evening Marylanders could expect no tax increases passed by lawmakers.

"I don't see that taking place at all," House Speaker Michael E. Busch said.

Busch's counterpart in the Senate, President Thomas V. Mike Miller Jr., said that instead of tax increases, the drafters of the state spending blueprints would "level fund" budgets; that is, provide no increases, or cuts, to line items.

"It'll be a hardship for a number of our trusted and valued state employees. Most likely they'll end up with no merit increase, no [cost of living] increase. Hopefully we'll minimize furloughs," said Miller (D-Dist. 27) of Chesapeake Beach.

Busch and Miller will have to shepherd Gov. Martin O'Malley's budget through the legislature. A Spending Affordability Committee briefing Tuesday night showed O'Malley (D) will have to plug a $1.2 billion gap between projected spending and revenue in his fiscal 2010 budget.

The briefing, prepared by the legislature's nonpartisan Department of Legislative Services, projects a nearly $16 billion budget to cover most government services supported by taxes.

So far in fiscal 2009, which started July 1, total state revenues are up 3.1 percent, from $3.3 billion to $3.4 billion. But when the tax increases passed in the November 2007 special session are factored in, the collections are down 2.5 percent, according to DLS data.

The special session passed large increases to the sales, income, tobacco and corporate tax rates.

The Spending Affordability Committee will meet next month to decide a percentage increase O'Malley should follow in drafting his budget. The percentage is just a suggestion, but because the committee is made up largely of legislators — and O'Malley's budget must go through the General Assembly for passage — it's considered a forceful suggestion.

A 6 percent increase to the budget would provide the same services that are funded now, said Warren Deschenaux, director of the Office of Policy Analysis, who led Tuesday's briefing.

Deschenaux's presentation included plenty of gloomy news. Unemployment was at 3.5 percent in January; it had risen to 4.6 percent in September. Initial unemployment insurance claims were up 62.6 percent in September over September 2007.

Existing home sales were down and car sales were down. Each has ripple effects to state tax revenue. For example, because of declining car sales, the state collected $118 million less than expected in titling, motor fuel, motor vehicle fees for fiscal 2008, which ended June 30.

Busch (D-Dist. 30) of Annapolis said the passage of the slot machine referendum this month meant lawmakers could dip into the $800 million in the "rainy day fund" with the assurance the money can be replaced with slots revenue, when those collections start in 2011.

He also looked forward to the U.S. Congress passing a national stimulus package.

"The important thing is to keep people employed. Even if we have to furlough people, it's better than laying them off. That just exacerbates the problem," he said.

Miller said lawmakers have several areas that could be cut, and one might be the geographic cost of education index, which funnels education aid to counties where schools cost more.

Lawmakers should also look at teacher pensions, he said. The state pays pensions, which are based on teacher salaries, but the state has no control over the salaries.

"I don't intend to support any cuts in education. There might not be the level of increases we promised in the past, but we're not going to in my opinion blow anything we've done," Miller said.