In Maryland, It Is the Worst of Times


August 11, 1991|By BARRY RASCOVAR

These are not happy times in the State House in Annapolis.

The recession keeps rolling along with no end in sight. Consequently, the government's "business" is booming -- more citizens on welfare, unemployment compensation, Medicaid or in prisons. Revenues are down, and will stay down, while expenses continue to jump.

Maryland is in bad shape. Almost unnoticed, the state's economy has shifted dramatically. Fundamental economic assumptions have been proved wrong.

The courts and Washington, meanwhile, are putting state governments in jeopardy by imposing mandates without considering the financial implications.

It's a mess, and it could remain that way for much of this decade.

Maryland's leaders thought they were living in a fairy tale land in which the state was virtually immune to any recession because of Maryland's huge federal work force and companies thriving off federal largess, as well as a diversified economy. Thus, they never planned for a bleak tomorrow. They're used to waiting out the region's mild downturns, then watching as revenues rebound and businesses boom.

No longer. A severe recession has hit Maryland -- with a vengeance. The federal work force is being squeezed. Defense contracts have plummeted. A glutted commercial real estate market has sent banks and developers reeling. Tax revenues have dropped faster than at any time in this half-century.

Maryland doesn't know how to cope. Not until last week did Gov. William Donald Schaefer belatedly appoint a panel to identify waste and inefficiencies in state government. The panel's proposals may not come soon enough to help the governor out of his current $1 billion deficit.

Recession meant zero growth in tax revenues this past fiscal year. Little change is expected in 1992 and only moderate improvement over the next five years. Analysts point to vacant office space, meager housing sales, mounting bankruptcies and high consumer debt as impediments to recovery.

There also has been a marked shift in Maryland from producing goods to producing services. Over the last two decades, jobs in the service industry leaped from just under half of total state employment to two-thirds. Consumers now spend more on services than on basic goods. This translates into less tax revenue: Service-industry jobs are lower-paying, which hurts income-tax coffers; more consumer spending on services hurts sales tax receipts because few services are taxed in Maryland.

Last year's drop in revenue, roughly $500 million, was made up by taking all the money from the state's various piggy banks, freezing spending and eliminating 3,300 vacant slots. But now the choices are far less palatable. As one budget official put it, "We're out of easy solutions."

Yet just as the state has to cut back on services, the demand has never been greater. Those segments of society who need the most help -- the young and the elderly -- are growing rapidly. The 17-and-under age group is expected to jump by 12 percent this decade, the over-65 age group by 18 percent.

The state's obligations are on the rise, too.

Medicaid cases are up 22 percent in three years; the main welfare program, up 24 percent; the state's welfare program for the near-poor, up 51 percent, and foster care cases, up 50 percent. The number of retarded and disabled individuals seeking state services has balloned in 15 years from 2,300 to 23,000. The prison population has leaped from 14,000 three years ago to 20,000 and the Public Defender's office has seen its caseload jump from 129,000 to 165,000.

Program costs mandated by federal law, state law or court orders account for 80 percent of the budget. These expensive programs -- aid to local schools, Medicaid, welfare, health and social programs and public safety -- rose $669 million in a two-year period just as revenue was tumbling.

Areas of government that could be cut -- higher education, general government agencies and capital programs -- fell in those two years by $268 million. But overall, spending jumped another $400 million.

The situation is so severe that even if the state were to close every public college and university in Maryland, it would still run a deficit next year of $300 million. If it then eliminated all capital spending and other non-essential mandates, state government would remain $100 million in the red. "Downsizing" alone won't do the trick.

Will the public stand for the kinds of massive tax increases required to balance the budget without severely crimping on-going programs? Not at this stage. Political leaders in the State House have a major education job on their hands as they try to resolve Maryland's biggest financial bind in decades.

Barry Rascovar is deputy editor of the editorial pages of The Sun.

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