ANNAPOLIS — Maryland fiscal analysts are predicting increased revenues and new state jobs next year, even as they face the specter of federal cuts that could tighten state finances and put thousands of residents out of work.
The committee of lawmakers in charge of making recommendations for next year’s state budget met Tuesday and heard testimony from analysts who said the state is well on the path to fiscal solvency and that rising tax revenues and home values are evidence of an ongoing recovery.
But they acknowledged that the state could be thrown for another loop if Congress fails to resolve its financial standoff and avoid the “fiscal cliff,” which could unleash $600 billion nationwide in federal tax increases and spending cuts at year’s end.
“We’re not done, but we’re close [to having recovered],” said Warren G. Deschenaux, director of the state’s Office of Policy Analysis. “The fiscal cliff is the single thing that could disrupt our trajectory. It’s the greatest risk that we face right now.”
The fiscal cliff would bring automatic federal spending cuts and an end to tax reductions from former President George W. Bush and cost Maryland about $118 million in direct federal aid, according to the state’s Department of Legislative Services.
But state officials say the larger issue is that it might force the federal government to lay off an estimated 60,200 Marylanders who are on its payroll, leading to a $635 million decrease in state income and sales tax revenue.
On Tuesday, Mr. Deschenaux told the state’s Spending Affordability Committee that if Congress avoids the cliff, the state could start next year’s budget process with just a $27 million shortfall — a gap that could potentially be closed with fund transfers rather than any revenue increases or spending cuts.
He estimated that the state’s operating budget would increase from $15.1 billion this year to $16.1 billion in fiscal 2014, which starts in July 2013.
Mr. Deschenaux added that the state is in relatively good shape with a $700 million rainy-day fund but recommended that lawmakers not only balance next year’s budget but build in a $200 million fund balance in case Congress is unable to reach an agreement preventing tax increases and spending cuts.
Sen. David R. Brinkley said state officials are taking the fiscal cliff seriously but added that he thinks Democratic leaders are more hopeful than Republicans that a solution will be worked out.
“With the outcome of the election, I think that they feel that Maryland will be sheltered a little bit by this administration,” said Mr. Brinkley, Frederick Republican. “But we’re already taking a hit just because of the economy.”
Republican leaders in neighboring Virginia have been bracing for the fiscal cliff throughout the year. In August, in addition to the money put into the state’s rainy-day fund, the state’s General Assembly set aside $30 million in a fund specifically created to mitigate federal government budget cuts. Last week, Gov. Bob McDonnell, a Republican, sent a memo ordering state agency heads to outline potential cuts of 4 percent in case Congress fails to act.
Maryland Gov. Martin O’Malley, a Democrat, has not taken that step, but a spokeswoman said Tuesday that he could do so relatively soon.
While Maryland budget officials laid out a positive picture for the state, the sole piece of bad news was about the state’s Transportation Trust Fund.
Analysts said Tuesday that the state Department of Transportation may have badly overestimated when it planned to spend $5.7 billion on projects over the next six years and that they may have overestimated revenues by $2 billion.
Budget analysts laid out several possible ways to generate the needed funding, including an increase in the gas tax.
• David Hill can be reached at dhill@washingtontimes.com.
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