Money week: Bond ratings, spending cuts

Closely guarded details of savings to come before bond-rating agencies’ visit to Annapolis

Many of the agency reductions have been closely guarded. Higher education reportedly submitted $20 million in savings, while the state health department was asked to identify up to $50 million. Other agency proposals are not known.

The administration was still fine-tuning the proposed cuts this week, said Rick Abbruzzese, a spokesman for Gov. Martin O’Malley (D).

Comptroller Peter V.R. Franchot (D) and Treasurer Nancy K. Kopp (D) were briefed on the proposed cuts Friday.

‘‘What I saw was so far quite reasonable. They're not hatcheting programs,” Kopp said. ‘‘It's not going to be terribly traumatic. It will be a good first step.”

Legislative leaders also are expected to get a sneak peek before Wednesday's meeting. Senate President Thomas V. Mike Miller Jr. said he had only a general idea of the cuts.

‘‘I’m expecting the governor and Nancy Kopp to vote for the cuts and for Peter Franchot to demagogue,” said Miller (D-Dist. 27) of Chesapeake Beach. ‘‘If he [Franchot] votes for them, I’ll be very pleased and surprised. It’s the responsible thing to do.”

Some departments have met with the governor’s aides multiple times to find reductions or fast-track efficiencies, O’Malley said Tuesday. The governor in May directed his Cabinet heads to identify $200 million in savings, which he said would include some layoffs.

‘‘Some of [the cuts] the average Marylander will feel; some of them, not as much,” O’Malley said. ‘‘If you’re one of the ones whose job has been eliminated, you’ll feel it very, very much.”

The cuts target savings from the just-completed fiscal 2007 and the newly started fiscal 2008. Before the administration drafts a budget plan for fiscal 2009 — which will begin July 1, 2008 — the governor and legislative leaders could agree on a plan that includes tax increases and legalized slot machine gambling.

Republicans applaud the effort to rein in state spending but say far more restraint is needed. They’re advocating limiting growth in the state’s operating budget to 3 percent next year, coupled with a revenue source that will provide an immediate infusion of cash.

Senate Minority Leader David R. Brinkley suspects the agency cuts will increase pressure to raise taxes to help pay for education, health and transportation programs.

Initiatives such as the Geographic Cost of Education Index, which would provide extra money to counties where it costs more to educate children, shouldn’t be funded in the current fiscal climate, said Brinkley (R-Dist. 4) of New Market. ‘‘You can’t go promising programs like that when you don’t have the wherewithal to pay for it.”

And O’Malley is going to have a tough time finding more efficiencies without affecting the delivery of services.

‘‘I think he’s going to find all the low-hanging fruit has been harvested,” Brinkley said, pointing to the work of O’Malley’s predecessor, Republican Robert L. Ehrlich Jr.

O’Malley took office in January with enough in state reserves to cover the spending in his first budget. With the reserves depleted to mandatory minimums, he is left with a $1.5 billion gap between projected revenues and projected spending. By law, Maryland budgets must balance.

Rather than cutting the budget during his first session, O’Malley asked for a year to study state spending with an eye toward efficiencies. That decision could haunt O’Malley’s future political ambitions, Brinkley predicted.

‘‘They’re playing a political tap dance — how to keep him looking good for a national campaign, while at the same time dealing with the calamity that giving him this one-year honeymoon has brought about,” he said.

Republicans should be offering solutions to the budget predicament, not throwing stones, Abbruzzese said.

‘‘Some in the Republican Party are more interested in playing politics and rewriting the history of the Ehrlich administration as opposed to coming together in closing the $1.5 billion structural deficit that this administration inherited,” he said.

Meanwhile, Kopp fears that slashing higher education funding will force tuition increases. But she remains optimistic that the state’s fiscal woes will not harm its prized triple-A bond rating, which allows the state to borrow money at a discount.

‘‘I think they would react quite favorably to activity being undertaken as part of an ongoing process to solve the problem,” she said. ‘‘They expect disagreement; they expect compromise; and they expect a process that will take some time and involve many different players and many different pieces before the puzzle is finally put together.”

Compromise is key when it comes to preserving the bond rating in tough fiscal times, said David S. Iannucci, a former state economic development secretary who now heads Baltimore County’s Economic Development office.

‘‘My experience at the state level and at the county level with bond rating agencies, what they want to see is the key decision makers are going to be able to collectively come together to address the budget,” Iannucci said. Baltimore County also holds a triple-A bond rating.

Staff Writer Douglas Tallman contributed to this report.