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Deschenaux: State appears to be on right budget path

ANNAPOLIS — The chief fiscal analyst for the Maryland General Assembly warned lawmakers on Monday that they need to prepare for the “big train that is coming” from federal budget cuts by reducing the state’s running budget deficit in this legislative session.

Warren Deschenaux, director of the state’s Office of Policy Analysis, told members of two fiscal panels in Annapolis that Gov. Martin O’Malley’s budget proposal goes a long way toward doing that with a mix of spending reductions and budget cuts.

“In sum, we can see light at the end of the tunnel, and it does not appear to be a train — at least not yet,” Deschenaux said.

Maryland lawmakers are required by law to approve a balanced budget for the fiscal year that begins in July during each legislative session, which adjourns in April. However, the state typically has an ongoing budget deficit in future years, because some of the measures taken to balance the budget annually do not continue into future fiscal years. The ongoing shortfall is often referred to as a structural deficit.

Now, Maryland has a structural deficit of about $1.1 billion. O’Malley’s budget proposal would knock that that down to about $400 million, or by about 60 percent, Deschenaux said. That goes beyond the goal of halving the deficit this year, a recommendation made by a panel of lawmakers in December.

Deschenaux said it’s important to reach structural soundness in order to protect the state’s triple-A bond rating and prepare for what he described as “the big train that is coming for Maryland and all other states.”

“What is that train? That is the federal government’s effort to balance its budget, which will inevitably result in fewer jobs in Maryland and less money coming from the federal government,” Deschenaux said. “If we’re going to be prepared for that and in a position to address it, we do need to deal with our own structural budget issues.”

To do that without compromising support for public schools, higher education and, for the most part, social safety nets, O’Malley has put some controversial proposals before the General Assembly.

For one thing, he has proposed reducing tax refunds for people who make more than $100,000 annually.

He also has recommended a significant shift of teacher pension costs from the state, which currently pays the entire bill, to the counties.

“If it turns out that the governor’s proposal is not palatable to you in some respects, it’s going to be incumbent on you all to find substitutes to both balance the budget for the year and structurally for the future,” Deschenaux told members of the House Appropriations Committee and the Senate Budget and Taxation Committee.

The pension shift would move nearly $240 million in new expenses to the counties. The governor has included money this year to help them make the transition, including about $111 million in new revenue from reducing tax exemptions for people who make more than $100,000.