State's deficit keeps rising Estimate tops $400 million

December 05, 1990|By William Thompson | William Thompson,Evening Sun Staff Thomas W. Waldron and Melody Simmons contributed to this story.

Maryland's financial troubles are more serious than anticipated and will cause an overall budget shortfall exceeding $400 million this year, top state officials are expected to announce tomorrow.

Revenues collected from a spectrum of taxes and fees are now projected to fall about $368 million below estimates, the state Board of Revenue Estimates is to announce, sources said.

The projected drop in tax receipts means that cuts in the $11.7 billion budget already under way by the Schaefer administration will have to be deeper and wider, say legislative sources.

"The news continues to become very critical," Gov. William Donald Schaefer said today. While declining to discuss specifics about the revenue estimates and what additional measures he will have to take, Schaefer said critical steps will be needed to bring the shortfall under control.

"We're going to do some things that are very painful," he said.

The revenue slump is the chief -- but not the only -- cause of the overall budget shortfall.

Another factor is the rising cost of programs, including welfare and Medicaid, and such unexpected costs as $13 million in extra pension costs brought on by higher-than-expected pay raises for school employees in various counties. More than $68 million in total program cost overruns were identified last month, a figure that could increase before the fiscal year ends next July 1.

Add that $68 million to the projected $368 million drop in revenues, and the overall shortfall reaches $436 million. That is more than twice the projection that Schaefer used when he announced the spending cuts last month, and it overshadows even the gloomiest picture painted so far by state budget experts.

Sources said Schaefer learned of the new estimates late last week and is scheduled to talk privately with key legislators before the Board of Revenue Estimates meets publicly tomorrow. The BRE consists of Comptroller Louis L. Goldstein, Treasurer Lucille Maurer and Budget Secretary Charles L. Benton Jr.

Legislators who had downplayed the earlier shortfall estimates now agree the problem is serious.

"It's a big chunk of change," said Sen. Laurence Levitan, D-Montgomery, who chairs the Budget and Taxation Committee.

When he recently pared state spending to meet the constitutional mandate for a balanced budget, Schaefer used a $180 million shortfall estimate prepared by his administration's budget staff, headed by Benton. Chief legislative analyst William S. Ratchford 2nd has steadfastly predicted that Maryland's money woes would be worse, with a shortfall reaching about $322 million.

Last month, the governor announced budget cuts and cost-containment measures of about $176 million. Based on the latest estimates, the governor may have to cut another $260 million from the budget.

Tomorrow's revenue estimates are significant to the governor not only for adjusting current spending, but because he will use them to prepare what is sure to be an equally tight budget for the 1992 fiscal year.

The BRE projections are based on a number of factors, including the latest data about monthly collections in sales taxes, real estate transfer taxes, corporate income and other taxes. Overall state revenues for October this year are below the revenues for October last year, Goldstein told the governor recently, and that drop indicates unusual problems with the economy.

Normally, all revenues collected during any given month are 4 percent to 8 percent above those collected during the same month the previous year, according to Marvin A. Bond, a spokesman for the comptroller's office.

Bond said records show that, since Maryland began collecting sales tax in 1947, only once -- last January -- have sales tax revenues from one month been less than those collected during the same period in the previous year. Sales tax receipts from January 1990 fell about $120,000 below the more than $170 million collected in January 1989. While the difference in actual .. dollars is not great, the disparity worries economists.

Schaefer had hoped to achieve much of the budget savings by a hiring freeze, but he had to slice some programs as well. The first swing of his budget ax hit thousands of Marylanders who receive state help for services such as medical prescriptions and kidney treatment.

The cuts fell heavily on programs administered by the Department of Health and Mental Hygiene. Those cuts totaled ** $43.4 million, 3 percent of the department's $1.4 billion budget. As part of that cut, the department will halt state aid for prescriptions for Marylanders who are not eligible for Medicaid. The program freeze, which will save an estimated $3 million, will begin April 1. The department will also reduce the amount it pays hospitals and clinics for Medicaid patients.

Spending for the University of Maryland 11-college system was cut 6 percent -- the highest percentage for any state department. The cuts total $38 million and include a freeze on ambitious faculty hiring plans and reductions in some grant programs.

The Maryland Higher Education Commission is expected to recommend additional cuts after the new revenue estimates are released. However, anticipating the cuts, Maryland Higher Education Secretary Shaila Aery this week ordered a 10 percent cut from the state's $28 million allocation to 14 private colleges and universities.

J. Elizabeth Garraway, president of the Maryland Independent College and University Association, said the $2.8 million cut -- the largest in higher education this year -- places the institutions at severe disadvantages because it also means that the 1992 budget requests will be slashed.

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