Changes in economy led to state's financial woes Deficit forces more cuts in state budget.

October 01, 1991|By Marina Sarris | Marina Sarris,Evening Sun Staff

So how did Maryland manage to get itself into such a financial mess?

Shifting employment trends, a tax system that does not address some economic changes and a nationwide economic recession all played a role in the continuing saga of the state's budget deficit.

So has residents' support for certain programs, some of which the state agreed to pay for during the economic heyday of the 1980s.

All together, those factors forced the governor and legislature to cut $660 million from the budget before July.

And now, Gov. William Donald Schaefer must cut an additional $450 million to balance the current budget. He has proposed slashing public assistance programs for the poor, eliminating the jobs of 1,766 government workers and closing two state police barracks, among other cuts.

During recent years, the state budget has been hit by increased demands for government services, cutbacks in federal aid and relatively new problems, such as the acquired immune deficiency syndrome (AIDS) epidemic.

The current recession has pushed more people into the ranks of the unemployed, fueling demand for social services and medical programs that receive state money.

Also, two groups who traditionally need the most government services -- children and the elderly -- are growing faster in percentages than the 18- to 64-year-olds who generally foot the bill, said Frederick W. Puddester, deputy secretary of budget and fiscal planning.

Revenues from taxes, however, have not kept pace with the state's expenses.

For one thing, the tax system does not fully address Maryland's shift to a service-oriented economy, Puddester said.

The economy shifted away from manufacturing and toward the service industry during the last two decades, according to administration and legislative financial analysts.

Goods-producing and service jobs each made up about half of total employment in 1969. Twenty years later, however, service jobs outstripped non-service jobs, 64 percent to 36 percent.

The service category includes everything from lawyers to hamburger flippers in fast-food franchises.

Many service workers earn less than manufacturing or factory workers, for example, leading to less growth in state revenues from income taxes, Puddester said.

Besides slowing the growth in income taxes, the shift to a service economy also retards the growth in sales tax revenues, since the state taxes merchandise but not services, he said. Sales and income tax dollars make up almost 80 percent of the general fund revenues.

Unless changes are made in the tax system, the state will most likely see its revenues decrease over the next 10 years while expenses mount, according to some legislators and the governor's top fiscal advisers.

Others say a fundamental question must be asked. "People have to decide what they want government to do," said state Treasurer Lucille Maurer.

Should government raise taxes to pay for programs for the homeless, the poor and children?

Or should government try to reduce its size without major tax increases?

Or a little bit of both?

Answers may come in the next few days, weeks and months.

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