Maryland governor seeks cushion for federal cuts

WASHINGTON Wed Jan 16, 2013 3:05pm EST

WASHINGTON Jan 16 (Reuters) - Maryland should strengthen its reserves and end next fiscal year with a surplus in order to weather possible federal spending cuts, Governor Martin O'Malley said on Wednesday unveiling his proposed budget for fiscal 2014.

O'Malley is also seeking $325 million in spending cuts, primarily through small reductions in state agencies, hoping to bring the highly-rated state's budget into balance.

"Because of the better choices we've made together over the years, we enter 2013 in a better position than most other states to create jobs, expand opportunity, and protect the safety and security of our citizens," said O'Malley in a statement, adding his plan "places us on the verge of eliminating the long-standing structural deficit."

Like neighboring Virginia, Maryland is concerned that federal spending cuts scheduled to begin in March will disproportionately hurt its economy, given it is home to large numbers of federal workers and contractors.

O'Malley said the state should increase its rainy day fund to $921 million and end fiscal 2014 with a balance of more than $230 million to offset possible reductions. Maryland's fiscal 2014 starts July 1.

Altogether, O'Malley expects revenues to grow 3 percent next fiscal year to $36.929 billion, with reserves boosting the amount of money available to $37.337 billion. He anticipates spending will also rise 3 percent, to $36.931 billion.

Dubbing his plan "a jobs budget," the governor called for creating employment by spending $336 million for school construction and upgrade, saying it would lead to 8,100 jobs. He also called for other infrastructure spending to provide work. Currently, the state's unemployment rate is 6.6 percent, after reaching 8 percent in 2010, the highest level in nearly 30 years.

O'Malley, a Democrat who supports education, also proposed spending $6 billion on public schools, a record for the state.

Maryland weathered the recession better than most states because of its proximity to the nation's capital, and also because of its growing high-tech corridor. O'Malley is seeking to foster the sector by creating a new cybersecurity tax credit and expanding biotech and research and development tax credits.

Many states cut aid to local governments during the recession as they sought to balance their budgets. Now that their revenues are snapping back some states, such as Virginia, are sending more money to towns and cities.

O'Malley is seeking to increase grants for police by 48 percent and assistance for community colleges by 5.2 percent. He would also like to spend $15 million on transportation grants for municipalities.