ANNAPOLIS -- Barely a month into the new fiscal year, a top Schaefer administration budget official warned yesterday that the state's only alternatives for reducing huge, new budget deficits this year and next are to increase taxes or to cut drastically the services offered by the state.
Following a solid year of budget reductions that wiped out virtually every fund or significant pool of money that could be shifted to cover a shortfall, further cuts are likely to result in layoffs, possibly before the new fiscal year is out, said Frederick W. Puddester, deputy budget secretary to Gov. William Donald Schaefer.
"We really do have a problem, and it is not going away," he said.
In separate briefings to Governor Schaefer's Cabinet and to reporters, Mr. Puddester said the state already faces a $300 million deficit in the fiscal year that began July 1, plus a projected $675 million deficit in fiscal 1993, the budget of which Mr. Schaefer is now beginning to prepare for submission to the General Assembly in January.
Mr. Puddester said his briefings were intended as a wake-up call for anyone who may believe Maryland's budget problems are a thing of the past.
"We're not out of the woods yet," he said, and legislative leaders quickly agreed.
"I think [layoffs] are a strong possibility because we have fewer options left to us," said House Appropriations Committee Chairman Charles J. Ryan, D-Prince George's.
"We avoided layoffs last year by moving money around," he said.
Forced to reduce the fiscal 1991 budget four times, Mr. Schaefer and the General Assembly ultimately trimmed it back to fiscal 1990 levels. In doing so, they wiped out a $127 million emergency "Rainy Day Fund," cleaned out millions more earmarked for parkland acquisition and other purposes, raised $95 million in new taxes and eliminated 3,300 mostly vacant state jobs.
Even so, Mr. Puddester said he fears that the public does not believe the size of state government has been reduced nor that the state still faces a serious fiscal problem that cannot be overcome through a normal increase in revenue.
He said the budget office intends to send notices to all state agencies by early next week directing them to come up with new plans to reduce spending.
Responses are due by the end of August.
Mr. Schaefer proposed a huge tax-increase package in the 1991 legislative session, but it was rejected by the legislature, which wanted to develop its own proposal.
Last month, the General Assembly's fiscal committees launched their own study of expenditures and revenue, and tax recommendations are expected by year's end.
"Because we have used up all our 'Rainy Day' funds, etc., we're going to have to look at either downsizing -- by not sending some money to the local jurisdictions, or by reducing the number of state employees -- or by raising the water level, doing something with [tax] revenues," Delegate Ryan acknowledged. "That is the undercurrent of the study the legislature is doing this summer."
The fundamental problem, Mr. Puddester said, is that about 80 ** percent of the portion of the budget financed by state taxpayers is spent on education and other aid to local governments, on Medicaid and welfare, on other health and social programs, and on prisons and related costs.
Expenditures in those areas, he said, are "virtually uncontrollable," having grown by about 15 percent over the past two years even as the state suffered through a deep recession.
That, he said, means reductions must be made in the remaining 20 percent of the budget, which primarily includes colleges and universities, the headquarters of various state agencies and capital projects.
Expenditures in those areas have already been trimmed by 16 percent over the past two years, and further reductions will be hard to absorb without affecting services or laying off employees -- or both, he said.
While growing Medicaid, foster care and welfare caseloads and a steady increase in the prison population continue to push up overall spending, annual increases in revenue have slowed to about 6 percent from the 8 percent to 10 percent Maryland officials had come to expect, he said.
The drop in revenue is partly attributable to a shift in the economy to more lower-paying, lower-taxed service jobs, he said.
This is compounded, he said, by an increase in services state government is now expected to provide -- for such problems as AIDS, day care, teen pregnancy prevention, and drug and alcohol abuse.
To cover the projected fiscal 1993 deficit, Mr. Puddester said, the state would need a 16 percent growth in revenue rather than the 6 percent to 6 1/2 percent now projected.