State legislators tackle huge deficit Projections bleak, methods of business may become issue.

June 26, 1991|By Marina Sarris | Marina Sarris,Evening Sun Staff Reporter William Thompson contributed to this story.

Maryland legislators face projected deficits totaling $87 million for the 1992 and 1993 fiscal years as they begin a major study of taxes and government spending.

Lawmakers received the bad news from their financial analysts yesterday as they launched a study of ways to overhaul the way the state spends money and taxes its citizens. The study is the first of its kind in about 25 years, legislators said.

Some of the legislators greeted the preliminary general fund deficit projections with frowns, others with nervous laughter and one by calling out, "Let's have a drink."

Their chief fiscal adviser, William Ratchford 2nd, said economic trends indicate the state probably would have to change the way it does business.

"I would like to say we're going to return to the heyday of the mid to late 80s. We may, but I think the probability is that we won't," he said during a joint meeting of Senate and House fiscal committees.

During that "heyday" of booming economic growth, the state accumulated a large surplus and increased spending on a variety of programs.

But the recession put an end to that. During the 1991 fiscal year, which ends June 30, the state constantly had to readjust its spending plans to deal with a budget shortfall that eventually totaled $660 million.

Maryland's constitution requires a balanced budget, so lawmakers held a special session today to deal with the last of the budget woes.

Legislative analysts yesterday predicted a shortfall of almost $300 million for fiscal year 1992, which begins July 1.

That estimate includes an increase in spending on Medicaid, which rose during the recession as more Marylanders fell on hard times. Medicaid helps pay for health care for the poor, elderly, disabled and low-income families with children.

Schaefer administration fiscal experts put the 1992 deficit closer to $200 million, mainly because they're counting on "rolling over" part of 1992's Medicaid bills into the 1993 budget. This is an accounting trick the state has resorted to frequently in recent years.

"We've been rolling bills since [cavemen threw] rocks," said Fred Puddester, one of Gov. William Donald Schaefer's top budget analysts.

"I don't know that when you're already $200 million in the hole is the time to get religion on Medicaid," he said of the legislature's decision to include full Medicaid payments in its budget estimates.

The news is worse for fiscal year 1993, which could see a $573 million deficit, legislative analysts said. That projection assumes state workers receive cost-of-living pay raises, which were eliminated during 1992 as a cost-saving measure.

"My agenda would be to spend the summer slashing, cutting and hacking," said House Minority Leader Ellen R. Sauerbrey, R-Balto. Co. "There's only two ways to deal with it. If we're not willing to slash and hack, then we're dealing with the T-word."

By that, she meant "taxes," which some other legislators have taken to calling "revenue enhancements."

A tax increase probably will be part of the proposal that grows out of the study, lawmakers said. The study itself seeks to address ways to help poorer areas such as Baltimore, while paying for general education, health and other expenses.

The legislative study group plans to unveil its proposal this fall and sponsor public hearings in November. Its recommendations will go the General Assembly in 1992.

Lawmakers hope to come up with something more politically acceptable than the $800 million tax increase proposed last year by the gubernatorial commission headed by attorney R. Robert Linowes.

Legislators angered the governor by shelving the Linowes plan earlier this year in favor of their own study this summer. Lawmakers had said Marylanders opposed the large-scale tax increase proposed by Linowes, especially in light of the current recession.

In evaluating Maryland's tax structure, the legislature is likely to consider the changing nature of Maryland's economy. The economy shifted further away from manufacturing and toward the service industry during the last two decades, according to the legislature's financial analysts.

From 1979 to 1989, employment in goods-producing jobs increased by only 9 percent and government jobs rose by only 4.7 percent. But jobs in the service sector, a catchall category that includes everything from lawyers and physicians to hamburger flippers in fast-food franchises, grew by 50 percent.

While goods traditionally have been taxed, the Linowes Commission proposed taxing certain services for the first time, in recognition of the economic shift favoring the service industry.

Unless changes are made in the tax system, Puddester said, the state will most likely see its revenues decrease over the next 10 years while expenses mount.

Del. Charles J. Ryan, who chairs the House Appropriations Committee, said he sees a major tax increase as "inevitable" for the state. Programs, however, will have to be carefully evaluated to determine what the state should fund, the Prince George's Democrat said.

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