Maryland’s state government faces a shortfall of $761 million for the next budget year, necessitating tough decisions ahead for Gov. Wes Moore and state lawmakers.

The budget situation — while not dire, given the total budget is more than $60 billion — will test Democrats’ ability to enact new programs and services, given their limited financial resources.

Closing the budget gap will require a combination of long-term budget adjustments, such as cuts or revenue increases, and short-term transfers, a nonpartisan analyst advised lawmakers on Thursday. All told, the shortfall is “somewhat manageable” to handle, said David Romans, coordinator of fiscal and policy analysis for the Department of Legislative Services.

The bipartisan group of lawmakers that advises the full General Assembly on budget issues voted to recommend finding those cuts and transfers and to “consider” raising more money, specifically through adjusting fees so they better match the cost of services provided by the state.

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The group, known as the Spending Affordability Committee, also cautioned against passing new programs or requirements that aren’t linked to revenue that would pay for them and agreed to consider how to make government more efficient without reducing services.

The committee recommended borrowing $1.75 billion for construction projects by issuing bonds and setting aside $200 million for construction projects for lawmakers to assign to local projects in their districts.

The committee also agreed to be judicious about tapping the state’s Rainy Day Fund, which currently is equal to 10% of the state’s general fund. Analysts suggested going no lower than 8.5%.

Republican lawmakers issued a statement opposing any new tax increases. House of Delegates Minority Leader Del. Jason Buckel said in the statement that any “knee-jerk reaction” by Democrats to raise taxes would not be affordable for Marylanders.

If the budget gap was left unaddressed, it would balloon into the billions of dollars in future years. But that will not happen, as the state constitution requires a balanced budget each year.

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The recommendations come the same day that economic forecasters updated their projections for how much money the state will have to work with.

Maryland’s economy appears to be leveling out after the up-and-down nature of the early coronavirus pandemic and then swift economic recovery. The federal government is not sending as much aid to the state, inflation has been high and consumers are no longer spending their money as freely.

The state’s sales tax, corporate taxes and lottery are not growing as much as anticipated, according to Robert Rehrmann, the state’s chief revenue estimator. Casino slot machines also are seeing a decline as gamblers continue to visit casinos, but spend less money per visit on slots.

Comptroller Brooke Lierman, after hearing Rehrmann’s report at a meeting of the state’s Board of Revenue Estimates, noted that decreased consumer spending doesn’t only hurt the state’s coffers, but it’s a challenge for small businesses.

State Treasurer Dereck Davis, another board member, said he has “full faith” in the governor and state lawmakers to be “socially responsible and fiscally prudent.”

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Moore’s budget secretary, Helene Grady, noted at the board meeting that the state’s economy is in “a period of transition” and discipline will be necessary.

Warnings about the shifting budget picture have been coming for at least a year. Last December, as former Republican Gov. Larry Hogan prepared to end his tenure, he cautioned that the surplus that existed at that time would not last forever and advised the incoming governor and lawmakers to be prudent.

And twice this year, Moore gave speeches to county officials suggesting that tough choices would be ahead, first in August and then again last week.

Pamela Wood covers Maryland politics and government. She previously reported for The Baltimore Sun, The Capital and other Maryland newspapers. A graduate of the University of Maryland, College Park, she lives in northern Anne Arundel County.

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