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The gloomy outlook set the tone at the annual Maryland Association of Counties summer conference.

By day, elected officials and county employees attended seminars highlighting preparations for base realignment and closure, reform of the state's critical areas law and the emergence of new media. After sunset, they let their hair down at receptions hosted by business interests and county leaders.

But the topic never strayed far from the economy or the effect of the November slots referendum on local budgets.

"If a county is not positioned and has its strategy developed to manage those contingencies, it's going to be a very difficult year," said Charles County Commissioner Gary V. Hodge (D-Dist. 4) of Waldorf. "Meanwhile, we have all the usual groups who are going to be pressing us for larger commitments of local funding."

His county maintains a robust $48 million fund balance — about 15 percent of its $312 million budget — money that could be needed if the state passes on cuts to the local level prompted by sharp dropoffs in revenues.

"There's some belief in Annapolis that the counties are still flush with cash, and that's simply not true, but we feel the same effects on local revenue that the state is feeling," said St. Mary's County Commissioner Thomas A. Mattingly Sr. (D-Dist. 2) of Leonardtown.

With home assessments falling, less cash is going into local coffers, and that squeezes counties that rely heavily on property taxes as their main source of revenue.

Some county officials said the passage of slot machine gambling is critical, but acknowledge that they cannot count on any slots money for several years. In the meantime, they're tightening their belts and hoping for an economic recovery.

"Tough times don't last, tough people do," Gov. Martin O'Malley told reporters Wednesday.

Except for maintaining previous commitments such as $50 million for the Chesapeake Bay Trust Fund — the legislature cut funding in half this year — O'Malley (D) does not expect many new spending initiatives in his fiscal 2010 budget, which will be unveiled in January.

He reiterated his desire to hold counties harmless to major budget reductions. "Like everyone else out there, we've got to weather this downturn."

Montgomery County Councilman George L. Leventhal (D-At Large) of Takoma Park is optimistic that the downturn will not linger.

"I think the economic circumstances are temporary and we're going to hunker down and get through it," he said. "It's the down end of the cycle, but it will pick up again."

Counties were extra conservative in crafting their fiscal 2009 budgets in anticipation that tough times would be ahead, said Calvert County Commissioners' President Wilson H. Parran (D-Dist. 3) of Huntingtown, who is MACo's first vice president.

To wit, Anne Arundel County examined "what if?" projections in anticipation of possible cuts, said Chairwoman Cathleen M. Vitale (R-Dist. 5) of Severna Park. It includes slowing down the timeline on capital projects and the first wave of possible cuts. Similarly, Calvert County did away with a "wish list" of programs and projects that will not be funded now.

Still, the mood isn't dire, Vitale said. "I don't think you hear panic, but caution."

Anne Arundel tried to brace for the downturn even when real estate values shot up several years ago and county coffers were overflowing, Vitale said. New money was directed only toward one-time programs, rather than long-term spending commitments.

County leaders remain optimistic that O'Malley and the General Assembly will resist pass-through cuts, but legislative leaders have already indicated that counties must share the burden because 40 percent of state revenues go to counties.

"You may have to look at some doomsday items," said House Appropriations Chairman Norman H. Conway (D-Dist. 38B) of Salisbury. "I don't want to think about that yet."

If the economy continues to founder, level-funding the budget at fiscal 2009 figures is possible, he said.

The summer conference will conclude Saturday with an address by O'Malley that will focus on the state's energy challenges and six ideas for reducing the possibility of rolling blackouts as early as 2011.