State's economy seen up in '91 UM economists say slump will hit low point this summer.

March 20, 1991|By Liz Atwood | Liz Atwood,Evening Sun Staff Mark Bomster contributed to this story.

The state, which followed the nation into a recession at the end of 1990, probably will reach an economic low this summer and begin to recover by the end of the year, according to economists at the University of Maryland.

"Construction and service employment were major contributors to Maryland's success in the 1980s, and declines in these sectors now account for a significant portion of the state's economic difficulties," says the report prepared by the Department of Economics at the University of Maryland College Park and released yesterday.

The authors of the report are Mahlon R. Straszheim, professor and chairman of the department, and Lorraine Sullivan Monaco, instructor.

Service-sector employment grew at a rate of 4.9 percent nationwide in 1989-90, compared with only 3 percent in Maryland. Construction and retailing employment in Maryland each grew at less than 1 percent during the period.

"Cutbacks in employment growth are substantial across virtually every major service sector through 1990 and projections for 1991 show continuing declines, or only small increases," the report says.

Recovery beginning in late 1991 and continuing in 1992 will help the state's fiscal position, says Straszheim. He predicts that tax receipts in fiscal 1992 -- July 1, 1991, to June 30, 1992 -- will reflect modest personal income growth in the last half of 1991 and a more pronounced growth in 1992.

The percentage increase in tax receipts from fiscal 1991 to fiscal 1992 will be about the same as that for fiscal 1990 to fiscal 1991, Straszheim says.

While refusing to give precise numbers, the economist estimates a 3 percent to 4 percent increase in tax revenues in fiscal 1991.

The report drew a favorable response today from J. Randall Evans, secretary of the state's Department of Economic and Employment Development.

"I am confident that the improved economic patterns indicated in their projections will be realized in the coming months as prosperity begins to return to Maryland, particularly in retail sales and health, business and professional services," said Evans.

Evans said the study is in line with positive reports from the business community, and with projections by other economic forecasting firms that see the economy improving in the calendar year's second quarter.

The University of Maryland report is a follow-up to a study the economists presented last fall. Straszheim and Monaco said on Oct. 1 that state government projections of a $150 million tax revenue shortfall were too low and the state could run a deficit of twice that amount.

Reacting to the October report, Gov. William Donald Schaefer criticized the economists, saying, "What do we pay these guys for? We don't need them. I could sit down and write a stupid report like that."

But even Straszheim and Monaco's projection of a $300 million shortfall was too low. The latest figures by the state Board of Revenue Estimates place the tax revenue shortfall at more than $500 million for this fiscal year.

Unlike the October report, the one released yesterday contains no specific predictions. But Straszheim says the governor's criticism did not influence the economists' approach. "We decided not to focus on revenues this time," he says.

The two studies are based on a computer model comparing the state's employment and personal income growth with those of the nation as a whole.

In the first report, the economists outlined two scenarios for Maryland's economy: slow growth or a recession. An unexpectedly poor showing in the fourth quarter pushed the state into a recession, Straszheim says.

One result of the slowdown has been the leveling of economic growth in the various regions of the state. Employment and personal income had grown fastest in the Washington suburbs and slowest in Baltimore in the early 1980s. In the late 1980s, however, the differences in growth rates between the two areas were virtually eliminated, the report says.

Once economic recovery begins, Maryland's long-term economic advantages will re-emerge, the economists say.

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