States Face Double Jeopardy

November 01, 1991

Maryland is not alone. State governments all across the country are taking a vicious pounding from two directions: plunging tax receipts and soaring demand for services as more people seek help. The result has been $25 billion in higher taxes, $7.5 billion cut from states' spending and an enormous growth in unmet needs. We can expect even worse news in the year ahead.

States find themselves in double jeopardy. They are being "whipsawed," according to one official at the National Governors' Association, by shrinking revenues and the explosive growth of two costly programs -- Medicaid and prison construction. Federal and court mandates make it impossible for states to cut back in these two areas, each of which is growing at nearly a 20 percent annual rate. Medicaid and prison costs are devouring an ever-larger chunk of the states' budget. This leaves less and less money for other essentials, such as schools and social service programs.

The response by states to this fiscal crisis has varied widely. In the past 15 months, 31 states have raised taxes and 29 have cut budgets. Most of the added revenue has been raised in just four states with mega-deficits -- California, Pennsylvania, Texas and Connecticut. The most popular areas for cutbacks have been education, aid to local governments and either layoffs or furloughs of state workers.

Maryland has used all of these approaches in the past 14 months. A total of $1 billion has been cut with another $150 million still to be found in the current fiscal year. Yet next year's budget gap remains an ominous $700 million. The outlook is for more painful budget cuts to services and personnel at the state and local levels, as Gov. William Donald Schaefer indicated yesterday. Major action on state taxes, though, also seems inevitable, given the immensity of the gap.

Perhaps the only bright spot could be Governor Schaefer's "pump-priming" action yesterday to expedite $330 million in capital projects. This should breathe new life into Maryland's moribund construction industry and create much-needed jobs at a time when workers are being laid off by the thousands. Mr. Schaefer's common-sense move should bolster the local economy.

State officials are engaged in deep soul-searching about the proper role of government in the 1990s. Michigan, for instance, has slashed welfare programs and tried to balance its budget without raising taxes. Other states favor a combination of higher taxes and lower spending. Between the mandated health and correctional programs and the revenue squeeze, there just isn't enough money left over to support all of the current state programs. Something's got to give. State governments, after all, have no choice: nearly all of them are required to keep their budgets balanced.

Washington, take note.

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