Study finds decline in Md.'s economy, gloomy '91 outlook

October 02, 1990|By David Conn | David Conn,Department of Economics, University of Maryland College Park

Two University of Maryland instructors joined yesterday the growing chorus of voices debunking the state's reputation as recession-proof.

Data from the 18 months that ended in June show that Maryland already has suffered a significant decline in employment growth and income levels compared with the boom years after 1982, according to a report by Mahlon R. Straszheim and Lorraine Sullivan Monaco.

What's worse, according to the instructors at the College Park school's department of economics, Maryland's economic base is almost certain to deteriorate further, as measured by employment, personal income and tax revenues.

"Maryland's economy will exhibit little real growth in the next 12 months, and unemployment rates will increase," said the report, "Outlook for the State of Maryland Economy."

"Personal income is projected to increase by only 6.5 percent in 1990, and 5.6 percent in 1991, in contrast to growth averaging 9 percent in 1985-88."

Hardest hit by those declines, the report said, will be the state's fiscal 1991 budget, which assumed an 8 percent growth rate in tax revenues.

"The slowdown implies that income- and sales-tax revenues may increase less than 5 percent," said Mr. Straszheim, professor and chairman of the economics department, and Ms. Monaco, an economics instructor.

Already, Gov. William Donald Schaefer has had to increase his estimate of the state's budget deficit to $199 million from $150 million.

James B. Rowland, Budget Secretary Charles L. Benton Jr.'s assistant, who announced the latest figure a week ago, said the deficit could rise to $270 million if the state enters a recession.

Although he hadn't seen the UM report, Chief Deputy Comptroller J. Basil Wisner said his office is concerned about the economic forecasts and is monitoring tax receipts.

"There's cause for concern," Mr. Wisner said. "I mean, you can't pick up the paper today without seeing" events that threaten to hurt Maryland's economy, such as the Mideast crisis, oil prices and an impending national recession.

The report is the first for the school's State of Maryland Economic Analysis Center, Ms. Monaco said. The center will be available first to government agencies interested in developing economic forecasts, then, eventually, to businesses looking for assistance in long-range planning.

The report offers two scenarios for the next few years: slow growth and recession.

In the slow-growth scenario, based on real national growth of 1 percent this year and next, personal income tax receipts will increase 4.9 percent in fiscal 1991, which ends June 30, 1991, and 6.3 percent in fiscal 1992. That compares with 10 percent annual growth from fiscal 1986 to 1989, and 7.9 percent growth in fiscal 1990.

The same scenario predicts that retail sales and use taxes will grow by only 3.9 percent in 1991 and 1992, compared with 9 percent increases from 1986 through 1988, and increases of 5.9 percent and 4.3 percent the next two years.

Under the recession scenario, receipts from personal income taxes increase 5.6 percent and retail sales and use taxes grow by 5.3 percent in fiscal 1992.

The good news is that the report predicts Maryland's economy will recover around late 1992.

Thereafter in the 1990s," the report says, "Maryland's economy is likely to perform better than the national average, with continuing population immigration, though Maryland's projected advantage relative to the nation is less in this period after 1992 than in the years prior to 1990."

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