'Fiscal cliff' clouds budget process in Maryland

ANNAPOLIS, Md. (AP) -- Maryland's revenue projections are better than they've been in years. The state is on the verge of wiping out what was once a $2 billion budget deficit through cuts and tax increases, and it's on track to reap financial benefits in future years from full-fledged casino gambling.

Enter the so-called "fiscal cliff," a chasm of financial uncertainty 30 miles away in the nation's capital.

Negotiations in Washington on how to avoid across-the-board spending cuts and tax increases have clouded the financial future of a state that is highly susceptible to federal budget cuts because of its proximity to Washington. If the nation plunges over the cliff, Maryland could lose about 60,000 jobs, according to the state Board of Revenue Estimates.

The uncertainty presents difficulties in piecing together a budget for the next fiscal year when Maryland lawmakers convene for their annual 90-day session in January. It also is getting in the way of plans to find ways to shore up transportation funding, an area of huge concern in traffic-congested Maryland.

Democratic Gov. Martin O'Malley pushed unsuccessfully last year for a gas tax increase, and officials are keeping an eye on the possibility that Washington could raise the federal gas tax to help address the cliff. If the federal gas tax were raised, it would make it harder to go forward with a gas tax increase in Maryland.

Maryland Senate President Thomas V. Mike Miller, D-Calvert, said he doubts Washington will raise the federal gas tax. Still, Miller notes there is a need for new money to build infrastructure.

"There has to be some revenue somewhere to make positive things happen, to move people from place to place," Miller said last week.

For now, though, lawmakers and administration officials are in a holding pattern.

"If things work out and there's a resolution and it stabilizes the economy and the general public, then I think Maryland's budget is in pretty good shape, and we can take a look at different options to possibly enhance transportation," House Speaker Michael Busch, D-Anne Arundel, said last week. He offered no specifics, though.

"I'm not going to venture down there," Busch said. "I just think that there's tremendous amount of evidence that you need some kind of funding source for transportation and that you've got a backlog and you run out, basically, of money a few years down the road."

O'Malley has not said whether he will pursue a gas tax again. Last year, O'Malley proposed phasing in a 6 percent sales tax on top of the state's 23.5-cents per gallon tax, which was last raised in 1992. That would have raised the price of gas by about 6 cents a gallon in the first year, 12 cents in the second year and about 18 cents in the third year. The proposal sputtered because of high gas prices and a litany of other tax increases approved last year.

The unpredictability of the negotiations in Washington also is challenging O'Malley's administration in preparing a budget for the next fiscal year. In September, O'Malley's budget office released a memo saying the sequestration process was expected to reduce federal funding to the state and local governments in Maryland by more than $100 million. The memo noted that the state Board of Revenue Estimates projected that sequestration could reduce Maryland's wage and salary base by about $2.5 billion.

Budget Secretary T. Eloise Foster said preparing for the fiscal cliff has compounded the challenges of trying to fix the state's budget gap.

"While we knew that challenge, we had a big hole in terms of the fiscal cliff, and that's just a big uncertainty in terms of how do you go about planning for the unknown, so I think that's been the biggest challenge that I've been facing," Foster said.

Congress and President Barack Obama have a Jan. 1 deadline to resolve the fiscal cliff. The Maryland General Assembly convenes Jan. 9. O'Malley will submit his budget proposal Jan. 16 to the legislature.