$11.6 billion budget OK'd by Assembly Tax increases, fund shifts, cuts in programs loom

April 02, 1991|By John W. Frece | John W. Frece,Annapolis Bureau of The Sun

ANNAPOLIS -- Driven by the harsh realities of recession, Maryland's General Assembly approved yesterday an $11.6 billion budget for next year and balanced this year's battered budget by enacting an elaborate patchwork of spending cuts, fund transfers and tax increases.

As a result, those who smoke in Maryland will pay higher taxes on cigarettes, those who earn income through capital gains will receive a smaller tax break or none at all, and those who buy snacks or certain other foods and beverages will suddenly find those currently tax-free items taxed.

In addition to raising $95.4 million in taxes, the legislature also wiped out virtually every pool of money that had accumulated throughout state government, transferring millions of dollars from surpluses and fund balances into the general treasury to cover a sudden crash in state revenues that over a two-year budget cycle exceeded a half-billion dollars.

"The well's pretty dry," acknowledged William S. Ratchford II, the legislature's chief budget adviser.

The current fiscal year's budget had been thrown $553 million out of whack through a combination of declining revenue and increased costs for social welfare programs. Gov. William Donald Schaefer was forced to cut spending by his own agencies twice, and the legislature had to cut it a third time.

Still that was not enough. The legislature tapped the emergency "Rainy Day Fund" for $100 million (leaving a balance of about $26 million), took another $54 million from parkland acquisition and farmland preservation programs, and drew from dozens of other pots of money -- from rental housing programs to unclaimed lottery prizes to penalties paid by uninsured motorists.

The governor and legislature also were forced to put the brakes on huge increases in state aid for colleges and universities that began after the state's system of higher education was restructured in 1988.

"You haven't dismantled higher education," House Appropriations Chairman Charles J. Ryan Jr., D-Prince George's, told his committee. "You have just stopped the momentum."

By the time the governor's bare-bones spending plan for the fiscal year that begins July 1 arrived before the legislature, revenue had plummeted again, this time by $115 million. That attempt to balance was complicated by the legislature's refusal to go along with the governor's plan to do so by taking $76.6 million from the Transportation Trust Fund.

To avoid the transfer, lawmakers trimmed $76 million from Mr. Schaefer's spending plan and found another $51 million in special programs that could be transferred into the general treasury. But the legislature also wanted to avoid cutting education or other aid programs that benefit local governments, while raising money to help financially troubled Baltimore and to pay for several other programs not contained in Mr. Schaefer's original budget. To do all that, the Assembly's leadership decided they could no longer avoid raising taxes.

The House approved the fiscal 1992 budget, 110-19 (with 17 Republicans voting "nay"), approved the tax increases, 93-36, and approved the fiscal 1991 budget reconciliation bill, 113-16.

"We think you can walk away from this legislative session saying you've done the best you possibly can, given the fiscal condition of the state," Mr. Ryan told the lawmakers.

But he also warned that the dozens of one-time-only transfers that enabled them to balance the budgets this year would not be available next year. And, he said, unless state revenues rebound from the recession in ways that no one foresees, the state could face an opening deficit for the fiscal year 1993 budget that exceeds $400 million.

About three hours later, the Senate OK'd the budget, 40-7, authorized the fund transfers, 41-6, and approved the tax increases by a close margin, 27-20.

House and Senate leaders, fearful that the governor might veto one or more of the three tax measures, decided to roll them all into a single piece of legislation.

If the tax bill were to fail or be vetoed by the governor, Baltimore and the 23 counties would lose $65 million in education aid made contingent on the new tax revenue. In addition, $30.4 million in contingent appropriations also would be lost.

Those appropriations include $8.9 million to cover a shortfall in public assistance for the poor in this year's budget; an $11.4 million grant to Baltimore and several poor counties; $500,000 to keep the Lida Lee Tall Learning Resource Center operating at Towson State University; $4.6 million for staff at state mental hospitals; and $3.2 million to cover Medicaid bills from the fiscal 1991 budget that were rolled forward to make that year's budget balance.

Final budget actions

To balance fiscal year 1991 (current year, closing $552.9 million deficit):

* Cut budget: $217 million

* Surplus and increased revenue: $32.6 million

* Transfers from other funds: $294.6 million

* Public assistance deficiency appropriation: $8.9 million

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