More Red Ink for Maryland

September 30, 1990

The state's economic news grows gloomier. What had been a manageable $150 million state deficit earlier this month has grown to $200 million, with many experts predicting red ink in the $300 million range as the nation's economy slumps into recession. Gov. William Donald Schaefer's response may have to be Draconian.

Maryland's dilemma is shared by at least 23 other states, many of which are experiencing far worse budgetary deficits.

Virginia, for instance, already has a $1.2 billion gap in its two-year budget. Gov. Douglas Wilder has been quick to impose steep cuts on state programs. Governor Schaefer, too, has wasted little time forcing Maryland agencies to reduce spending by as much as 6 percent. But that now appears to be an interim step.

Sales tax revenues are lagging badly behind forecasts. So are corporate income tax receipts. Not surprisingly, real estate transfer taxes are plunging, reflecting a soft market in the Baltimore-Washington region. Meanwhile, the state's social costs are rising as more people file for welfare, unemployment and Medicaid benefits. Higher energy prices as a result of the Mideast crisis also will cost the state government millions more in electricity and fuel expenses.

The state's predicament may foreshadow bigger problems on the local level -- especially in counties voting soon on harsh tax-cap referendums.

Baltimore County, for instance, will lose $20 million in property tax revenue under its proposed tax-cap even as its other main revenue source, the income tax, plunges during the recession. Yet higher energy costs, health-care bills and Social Security payments will mean $50 million more in expenses. Layoffs could loom.

Fortunately for the state, lawmakers and the governor wisely used an earlier surplus to set up a $130 million "rainy day fund" that stands as a safety net against the recession. But before the governor taps into this account, he has to curb state expenses further.

This will be painful. The University of Maryland System already has been stripped of its "enhancement" money for the year, yet more cuts appear necessary. Social services agencies will have to make do with far less. State construction programs are being canceled. Jobs will be eliminated.

Governing in boom times is easy; running a state or county in a recession tests the mettle of a chief executive. Mr. Schaefer often faced a bleak budgetary picture as mayor of Baltimore. He was forced to make tough management decisions. He'll have to do the same thing in the State House in the months ahead.

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