Counties, municipalities size up potential reductions for fiscal ’09

Special session cuts did not go as deep as they could have, but next round may be different

‘‘Most of the potential damage that could’ve occurred would’ve occurred in the special session,” said Jim Peck, research director for the Maryland Municipal League.

‘‘We were certainly not killed by the special session,” said Marc Elrich, a councilman in Montgomery County, which stands to lose $16.9 million in state aid under the budget package passed by the legislature. ‘‘[Still] it’s not good.”

During the special session, lawmakers recommended $550 million in cuts and passed $890 million in new taxes, including an income tax plan that taxes upper income earners less than O’Malley (D) had proposed.

O’Malley does not have to include the $550 million in recommended cuts in the budget proposal he will release next month. But he does have a legal obligation to balance the budget. If he includes the recommended cuts and $38.1 million for a phase-in of funding for school systems where the cost of education is highest, known as the Geographic Cost of Education Index or GCEI, he still must identify $240.2 million more in reductions.

The result of the special session was an ‘‘almost incidental” loss of revenue for municipalities, Peck said.

The legislature increased the personal income tax exemption by $800, costing municipalities about $750,000 in revenue statewide in fiscal 2008 and $1.6 million in fiscal 2009.

Changes to the vehicle titling tax, which removed the trade-in value of existing vehicles from the sale price, led to a loss of highway-user revenue for municipalities of $1 million statewide in fiscal 2008 and $2 million in fiscal 2009, Peck said.

Counties lost a bit more during the special session, including about $82 million a year statewide in income tax revenue because of the exemption increase.

Montgomery County is expected to receive about $681.8 million in state aid in fiscal 2009 — about $16.9 million less than what it was to receive before the session. Frederick County was to receive $278.3 million in aid before the session. Now the county expects to receive $269.3 million — about $8.9 million less.

The $550 million in cuts recommended by the legislature include a $190 million reduction in state schools aid to counties. Part of that cut would be offset by the GCEI phase-in.

Other fiscal 2009 reductions in state aid to counties include a $30.6 million cut in electric utility property tax grants and a $21 million cut to Program Open Space funding.

Del. John L. Bohanan Jr., a member of the House Appropriations Committee that was largely responsible for the recommendations, defended the legislature’s approach to the cuts.

‘‘The big number that ends up coming out, it’s scaling back growth in Thornton,” he said, referring to the state’s school funding formula. ‘‘The rest of them are going to be fairly small across the board.”

Among the other reductions, none will be a significant cut to any one program or agency, said Bohanan (D-Dist. 29B) of California.

‘‘Most of it is scaling back anticipated growth,” he said. ‘‘... A good process will spread the pain and not unduly devastate or wipe out any particular area of the budget.”

O’Malley has been meeting with the Department of Budget and Management and state agencies and ‘‘looking at their specific priorities and balancing those against one another,” O’Malley spokesman Rick Abbruzzese said.

‘‘Throughout the process the governor has tried to mitigate the effect that balancing the structural deficit would have on local governments,” Abbruzzese said. ‘‘He’s always mindful of the effect on local governments and will try to mitigate that.”

Municipalities and counties are cautiously optimistic.

‘‘We’ve had guarantees from the administration that they’d do their best to protect local government resources,” Peck said.

A worst-case scenario projected by state budget analysts before the special session called for cutting state aid to the counties by $652 million. The counties are expected to see a $248 million cut instead, but are facing budget shortfalls of their own.

Frederick County, with a $472 million fiscal 2008 operating budget, faces a $10 million budget deficit in fiscal 2009. Montgomery, with a $4.1 billion fiscal 2008 operating budget faces a $401 million deficit for fiscal 2009.

‘‘Just maintaining the services currently provided is going to be the challenge of the day,” for counties, said Frederick County Commissioners President Jan H. Gardner (D), who is president of the Maryland Association of Counties.

State aid has increased an average of 9 percent a year since fiscal 2002, according to a budget analysis by MACo. It now accounts for more than 40 percent of the state general fund.

Cutting state aid ‘‘certainly has to be part of the solution,” Senate Minority Leader David R. Brinkley said.

Counties are concerned that more cuts could be on the way, Gardner said.

‘‘Pretty much every major program has already taken some pretty major reductions,” she said. ‘‘It would be pretty tough for the counties to accept any additional impacts.”

If there is anywhere left to cut without major impacts, the StateStat program that O’Malley established to scrutinize state agencies for efficiencies and savings, should find it, said Brinkley (R-Dist. 4) of New Market.

‘‘Last year the indication was ‘We just got sworn in, give us some time,’” Brinkley said. ‘‘Now they’ve had time. Now we’d like to see where they think this can be done.”

Brinkley said he would like StateStat to look at the effectiveness of government programs at their current funding levels.

‘‘When you cut below the programs below a certain level are you really getting anything out of them?” Brinkley said.

If not, they should be considered for elimination, he said.

Still, Brinkley said, it is his understanding that ‘‘the low hanging fruit had already been harvested.”

Sen. Nancy J. King, Brinkley’s colleague on the Senate Budget and Taxation Committee, agreed.

‘‘The public seems to think there’s a whole lot of pork out there when honestly, there really isn’t,” said King (D-Dist. 39) of Montgomery Village.

King said she is concerned that more cuts could come from education, mental health and social services. Public K-12 schools and higher education make up the largest portion of the state budget. The Department of Health and Mental Hygiene was the agency most impacted by cuts to the fiscal 2008 budget.

‘‘Every time there’s a major cut like that it’s the vulnerable who are hurt the most,” King said. ‘‘And they can’t defend themselves.”

Elrich, the Montgomery County councilman from Takoma Park, agreed.

‘‘They’ve demonstrated that they’re willing to go after, so far, programs that affect the most vulnerable,” said Elrich (D-At large).

‘‘The bottom line is what are the other choices?” King said. ‘‘There aren’t any other choices.”