Maryland's $1 Billion Deficit

June 26, 1991

The fiscal situation in Maryland's State House is growing progressively worse. Today, state legislators meet in special session to lop $125 million off the current budget to "balance" the books. But that's a small fraction of the problem. Over the next 24 months, another $872 million in red ink will be run up. It is a $1 billion headache with an unappetizing solution in sight: higher taxes.

Fiscal analysts for the legislature gave lawmakers the bad news yesterday. The recession has delivered a knockout blow to state coffers. And things are not expected to change much over the next two years. But certain mandated expenses still are zooming -- aid to localities, Medicaid, welfare, prisons and programs for the disabled. Medicaid bills alone account for nearly half of the $300 million deficit projected for the fiscal year that starts July 1.

Nearly all the state's reserve funds have been drained. Spending in most agencies has been slashed to 1990 levels. Yet the red ink continues to grow alarmingly.

A deficit of this magnitude cannot be ignored. Legislators will have to reconvene before next January to formulate an action plan. Some popular but expendable programs could be jettisoned. Local aid in non-critical areas may have to be trimmed. And laws mandating state spending may have to be modified. Even these steps, though, won't come close to closing the revenue gap.

In fact, implementing the entire Linowes commission report on tax reform wouldn't do the trick. The panel's recommendations earmarked only $345 million in new revenue for state-run programs -- not nearly enough to end Maryland's on-going fiscal crisis.

Major revenue increases appear increasingly inevitable. Thanks to the boom times of the 1980s, Maryland has gone 14 years since its last big tax hike. That's the longest stretch between general tax increases in the past six decades. This sustained growth fueled insistent demands for more public services. But now that this boom has turned into a bust, there's no way to pay for all these expanded programs without imposing higher sales tax and income tax rates.

The sales tax rate was last raised in 1977, the income tax in 1967. The basic structure of these taxes has never been changed. Yet that's what legislators probably will have to do this winter. Such unpopular action is not for the faint of heart. Lawmakers were elected, though, to make the tough decisions. This is one instance where they will be sorely put to the test.

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