Deficit in state budget may hit $450 million, analysts warn 1992 shortfall seen topping Schaefer estimates by 50%.

September 13, 1991|By William Thompson | William Thompson,Evening Sun Staff

Legislative budget analysts are telling top lawmakers that Maryland's 1992 budget deficit may be as much as 50 percent higher than the $300 million projected by the Schaefer administration.

If the forecast is accurate, the state may have to chop even deeper into programs and in aid to local government or increase taxes to maintain current levels of spending.

In a confidential memorandum sent to legislative leaders this week, Department of Fiscal Services Director William S. Ratchford 2nd predicts that the state's projected deficit could mount to about $450 million.

Ratchford, who advises the General Assembly on fiscal matters, attributes the increase in the deficit to overly optimistic projections of income and sales tax revenue, combined with a new federal regulation that is likely to deny the state about $55 million in Medicaid payments.

With a deficit of $500 million projected for fiscal 1993, the state may have to find a way to come up with almost $1 billion over two years.

The news prompted at least one powerful lawmaker to repeat his call for the General Assembly to meet in Annapolis later this year for the special purpose of raising the state sales tax from 5 percent to 6 percent.

"It's almost a certainty that sometime in 1992 there will be a sales tax increase," says Sen. Laurence Levitan, D-Montgomery, chairman of the Budget and Taxation Committee. "My thought is, why procrastinate?"

A 1 percent increase in the sales tax would bring in about $300 million a year. Levitan says that by raising the sales tax a single percentage point by Jan. 1, officials could close the $150 million gap between Schaefer's estimate and the new $450 million projection by the time the current fiscal year ends June 30.

While most lawmakers have said they will withhold judgment on a tax increase until a study of the state's revenue and spending picture is completed in October, Levitan says budget problems must be solved quickly.

"We have to address our 1992 [fiscal year] problems now," he said yesterday. "I don't think we can cut our way through a $450 million shortfall. I thought we'd have enough trouble with $300 million."

VTC Schaefer Cabinet heads and budget experts met privately yesterday to go over the latest round of proposed cuts in the state's $11.5 billion budget. The budget ax is expected to fall on a wide spectrum of programs, including aid to local schools and non-profit institutions which count on state aid for much of their operating funds.

According to Ratchford's memo and State House sources, the Schaefer administration is considering the following cuts and savings:

* $114 million in state agency programs, including cutbacks in funding for counseling, education and recreation programs for state prisons.

* $103 million in aid to local governments, directly affecting local schools and community colleges.

* $13 million in grants to private colleges, state-aided educational groups, the University of Maryland Medical System and non-profit institutions such as Peabody Institute in Baltimore.

* $70 million in "rollover" appropriations from the current fiscal year, an accounting trick that moves expenditures from the current fiscal year into 1993.

Although Maryland's coveted triple A bond rating -- the highest ranking a state can have when it sells bonds to raise money for capital projects -- remains intact, Ratchford says persistent problems in keeping a balanced budget could jeopardize the state's financial status in the eyes of New York bond-rating houses. A lower bond rating would make it more expensive for the state to borrow money.

To avoid a bond downgrading, Ratchford recommends that a solution be found to balance the budget and keep the state financially healthy by February, when the state plans to sell about $100 million in bonds.

Senate President Thomas V. Mike Miller Jr., D-Prince George's, calls the latest budget problems "simply a carryover of events from last year," when it took lawmakers and the Schaefer administration four cost-containment agreements to balance the fiscal 1991 budget.

"It gets to the point where, what's one more shell?" Miller says. "They keep landing. You don't take news like this casually, but you don't plan to jump off the Chesapeake Bay Bridge, either."

Miller declines to discuss how the budget will be balanced, but predicts that lawmakers will do what has to be done.

"There'll be much pain and sacrifices," he says. "But it will be balanced."

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