Budget passes troubles remain Md. legislators see revenue shortfall, more taxes in '92.

April 02, 1991|By Jon Morgan | Jon Morgan,Evening Sun Staff

Maryland legislators approved an $11.6 billion state budget for fiscal 1992 amid warnings that the state's growing fiscal problems may require more tax increases next year.

Describing the budget approved by the General Assembly last night as a "patchwork quilt," State Senate Majority Leader Clarence W. Blount, D-City, told his colleagues, "You're only binding a wound that will continue to bleed. We're going to have to come back here next year and deal with the hard problems."

An estimate released yesterday by the state Department of Fiscal Services projects that state revenues from taxes, the state lottery and other sources will fall $471.3 million short of spending in fiscal 1993.

That projected shortfall is more than $100 million greater than preliminary estimates by Gov. William Donald Schaefer's budget experts. They predicted last week that the 1993 shortfall would be $365 million.

The legislative analysts assumed slower growth in personal income than did Schaefer's analysts, said William S. Ratchford, director of the Department of Fiscal Services.

Lawmakers approved the fiscal 1992 spending plan last night along with a $90 million tax package and sent both measures to Schaefer. Legislators predicted painful times ahead and said other taxes may be necessary next year in addition to the $90 million they approved this year.

"We will have in fiscal year 1993 a budget problem that is much more severe than the one we have now," said Del. Charles J. Ryan, D-Prince George's, chairman of the House Appropriations Committee, in a warning to his colleagues.

Several fund transfers and other measures used to balance the 1992 budget will not be available next year. Meanwhile, the cost of many programs, such as the state's multiyear "APEX" education spending plan, go up automatically. And state workers, who were denied pay increases this year, will be due for some increase next year, Ryan said.

House Speaker R. Clayton Mitchell Jr., D-Eastern Shore, said estimating revenues this far in advance is tricky because the pace of economic recovery is impossible to predict.

"We are not coming out of the recession as quickly as other states. It's going to be a slow recovery," he said.

Lawmakers will study the state's tax structure this summer, but Mitchell declined to say if he would favor further tax increases.

In the budget passed last night, spending increased about 1 percent over fiscal 1991, less than the rate of inflation. Spending for welfare and related programs will grow by about $190 million. The budget also includes a $100.5 million, or 8.5 percent, jump in aid to education.

The spending plan also raised $90 million in new taxes for the 12 months beginning July 1. The tax plan, which passed 27-20 in the Senate and 93-36 in the House, calls for:

* An additional 3 cents-a-pack tax on cigarettes, on top of the current 13-cent excise tax. Also, cigarettes would become subject to the state's 5 percent sales tax.

* Carryout meals and prepared food costing less than $1 also would become subject to the 5 percent sales tax.

Decades ago, lawmakers excluded from taxation meals costing less than $1 in an effort to make more affordable the "working man's lunch." Carryout meals purchased in restaurants without customer seating are also free from the tax now, as are beverages sold "to go" in cups. All those items would be taxed under the compromise plan.

* A phaseout of the state's capital gains tax break, culminating in its elimination by Jan. 1, 1992.

For 1991, during the phaseout, individual taxpayers with incomes of $50,000, or $100,000 for joint filers, would be entitled to exclude from taxation 30 percent of the first $25,000 in capital gains.

That 30 percent exclusion would be reduced on a sliding scale for wealthier taxpayers and would be eliminated, effective July 1, for individuals making $65,000 and joint filers making $130,000.

Currently, 40 percent of capital gains income is exempt from taxes. About 7 percent of the state's taxpayers claim a capital gains break.

Schaefer submitted to lawmakers this year a tax restructuring plan that would have raised $800 million annually based on the recommendations of a commission headed by Montgomery County attorney R. Robert Linowes. Lawmakers rejected that plan, saying they wanted to consider it over the summer.

Sen. Barbara A. Hoffman, D-City, vice chairwoman of the Budget & Taxation Committee, said she believes the legislature will explore a whole range of taxes and spending apart from the Linowes recommendations.

When the process is over, more products are likely to find themselves subject to the state's 5 percent sales tax, she predicted.

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