Bad News Rising The cascade of bad economic news has affected Maryland companies like Constellation Energy which was saved by Warren Buffet’s bailout, and Legg Mason which got skewered by portfolio losses of former investment rock star Bill Miller.

Though most of the attention is on big company problems, there is little doubt that small businesses are struggling and trying to survive with far less financial resources than the big companies.

Sometimes downsizing in response to an economic downturn can help a company survive; but if sales aren’t there, no amount of restructuring will help. This is the dilemma faced by the Big 3 auto companies that are seeking government assistance, but don’t expect any small companies to get any government sympathy. Small business may be the backbone of America’s economy, but they are at the end of the line when it comes to bailouts.

People aren’t spending, but the lack of capital is also a problem for businesses that might be seeking solutions to save themselves, like merging with other companies. One consequence of bank mergers and now failures is that lending is concentrated in fewer institutions. If a bank gets into trouble, its customers have fewer choices and competition is affected. Banks can afford to be tougher and they are more than ever. Lending institutions made bad decisions but that can’t stop them from taking risks on making loans to deserving companies. Until they do that, any economic recovery will be stalled.

If private companies are suffering from a lack of capital, so is government. The O’Malley administration was forced to cut $200 million from its budget because of lower tax revenue; and transportation projects have been put on hold because gas tax receipts are down too. Eliminating vacant positions may reduce the budget, but it won’t reduce actual expenses which the government is going to need to do. The budget pressures provide an opportunity for state and local governments to examine the costs of the services that they provide and whether it can be done more efficiently. Each time there is a budget crisis in Maryland, money is shifted from accounts to cover shortfalls, or temporary solutions like furloughing state employees are used. But this time the revenue shortfalls may last longer and government will need to make more fundamental adjustments. It is going to take creative thinking to make revenues stretch – some services will have to be eliminated or projects delayed; but the opportunity for longer term re-structuring shouldn’t be missed.

The new Obama administration will be providing states with billions of dollars for infrastructure projects. Maryland, with its strong congressional delegation should get at least its fair share for bridges and highway projects. This will help employment in the region, but one project that won’t help soon enough is Baltimore City’s Redline light rail project which has been in planning for six years and at the soonest, would not be operational until 2012! This would be nine years after the planning started – is it too trite to say that we put men on the moon faster? Now, a recent article in the Sun points out continuing community objections to the route may further delay construction, if not kill the project altogether.

The New Year is likely to deepen the economic pain most of us are feeling. But the economic cold winter that we face shouldn’t freeze actions that need to be taken to reposition our local economy for the future growth that we all expect. The opposite should happen; the Red Line needs to be built, and the sooner the better. Federal money is going to be made available next year, and there is no time to waste in getting it.  12:27 PM •