Governor is warned of a $300 million shortfall in revenue.


August 02, 1991|By William Thompson | William Thompson,Evening Sun Staff

Maryland Cabinet secretaries will soon get orders to identify up to $300 million in cuts to absorb a revenue shortfall in the state's $6.4 billion general fund budget.

The cuts are likely to be deep -- and could include employee layoffs. They will also be hard to make because there are few budget reserve funds to fall back upon, according to Fred Puddester, Gov. William Donald Schaefer's deputy budget chief.

So far, the state has avoided massive layoffs. Asked about the issue yesterday, Schaefer said his intention is to "keep people working." But, he told a reporter, "I think we're facing a very serious situation. You can draw your own conclusions."

Cabinet and agency heads were briefed privately by Puddester yesterday in Annapolis and learned they soon will be given a target amount to cut from their individual budgets.

The cuts will vary from department to department, but the total will be at least $300 million, Puddester told reporters later. Agency plans could be in the governor's hands by early October.

Even when solutions are found to balance the current budget, state lawmakers face formidable challenges in the fiscal year ahead. Budget experts predict the state will collect about $675 million less than it needs to maintain state operations at the current level.

Puddester said the governor and the legislature have three options: Make deep cuts, raise revenues (usually taxes) or employ a combination of the two.

Yesterday's bad budget news, which echoed gloomy prospects discussed by lawmakers in June, came as legislators have been studying ways to overhaul state spending and taxation.

The study, believed to be the first of its kind in 25 years, came after lawmakers rejected Schaefer's proposal this year to revamp the tax structure and raise $800 million in new revenues.

Del. Charles J. Ryan, D-Prince George's, the House Appropriations Committee chairman and a leader of the study, said the immediate budget problem could be resolved if lawmakers choose to agree upon a new revenue source or tax within this fiscal year.

One way to lessen the pain of cuts, Ryan said, would be to adopt money-raising emergency legislation at the start of the 1992 General Assembly session.

Ryan said the governor and Cabinet heads are facing "a whole bunch of negative options," with layoffs a high probability. "A $300 million problem without reserve funds requires direct action," he said. "Layoffs or a reduction of staffs will have to be considered."

During the economic boom of the 1980s, 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 ended June 30, the state constantly had to readjust its spending plans to deal with a budget shortfall that eventually totaled $660 million.

The current budget resulted from a combination of forces and events, according to Puddester,who said he doubts the public is aware how deep the state's financial troubles are.

"I don't think people really believe we do have a problem and it's not going away," he said.

While income is down because of the recession, Puddester said, other trends may outlast the effects of a sour economy.

Reflecting a nationwide change, Marylanders are spending less on consumer goods -- which are tagged with the state's 5 percent sales tax -- and more on services -- which currently are not taxed. Efforts in the past by lawmakers to levy a tax on such services as dry cleaning, shoe repair and lawyer fees have failed.

As use of services increases, more service jobs are created. And, because those jobs generally pay lower wages than positions in the non-service industry, the state reaps less in income taxes.

While tax revenue is dropping, greater demands are being placed upon state services. Puddester said that by the year 2000 the young and the elderly populations -- the two groups that traditionally use tax-supported state services the most -- will have grown disproportionately larger than the middle-age group that shoulders most of the tax burden.

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