Maryland's not alone with fiscal woes 34 states and D.C. have raised taxes by $16 billion.

November 22, 1991|By John Fairhall | John Fairhall,Evening Sun Staff

WASHINGTON -- You think Maryland has fiscal problems? New Jersey officials were so desperate this year that they sold off part of Interstate 95.

California raised taxes by $7 billion. The Pennsylvania legislature approved a record $3 billion tax increase. Connecticut imposed a personal income tax for the first time.

In all, 34 states and the District of Columbia have raised taxes by $16 billion, the largest increase ever. Most states also have cut budgets. Added up, this is one of the worst years state officials can remember.

And it's not over.

Twenty-five states are taking in less revenue than expected since the current fiscal year began July 1, and 20 states are experiencing overruns in Medicaid spending, according to the National Conference of State Legislatures. These forces may trigger yet another round of cuts.

Maryland officials forecast an additional shortfall of $150 million to $200 million this year, after having chopped $450 million from the budget in October.

"I would say that Maryland is on the bad side of typical," says Marcia Howard, deputy director of the National Association of State Budget Officers. "There are going to be many states which will have to take some action to bring their budgets back into balance this year. It wouldn't surprise me if it were over half the states."

Local governments are hurting too, more so because about a third of the states have cut aid to cities and counties. The National Association of Counties estimated that 40 percent of all counties with more than 100,000 population face deficits.

"There is a financial crisis facing county government in our country," says Kaye Braaten, president of the counties' group.

The recession is the chief culprit: Sales- and income-tax receipts are down. Welfare costs are up.

When the economy improves, state officials expect slow growth and gradual improvement of their finances. A key indicator of the economy's health will be retail sales and sales tax revenues during the holiday season.

But some states are so deep in the hole, with reserves depleted and mandated costs such as Medicaid skyrocketing, that they already project budget gaps in the next fiscal year, which begins July 1, 1992.

Maryland officials forecast a deficit of $700 million to $800 million in the next fiscal year, which the state constitution requires they make up with budget cuts, tax increases or both.

Maryland this year increased taxes by $90 million by extending the sales tax to new products, raising the cigarette tax and phasing out the capital gains exclusion. Later, in a special session, the legislature raised a host of motor vehicle fees to bring in an extra $35 million.

But that was small potatoes compared with other states.

Pennsylvania set a state record by increasing taxes 24 percent over 1990 levels. California's increase was 14 percent. Twelve other states boosted tax collections by more than 5 percent, which is considered a large increase. Maryland's increase amounted to 1.4 percent.

Many states had to bite the bullet two years in a row. In 1990, some 26 states increased taxes by $10 billion, the National Governors' Association reported.

Some states resorted to creative financing. New Jersey, which raised taxes in 1990 but not this year, helped balance its budget by selling a four-mile section of I-95 to the New Jersey Turnpike Authority for $400 million.

New York extended its sales tax to dating services. Texas increased its bingo tax. Florida imposed a tax on pinball and video arcade games and Tennessee began taxing tires.

Meanwhile, Texas voters this month approved a lottery that could generate more than $60 million.

But revenue increases are only part of the story. Most states also cut their budgets, this year and last year, reducing services and in many cases firing or furloughing workers.

Welfare programs were cut back, including in Maryland. Virginia eliminated agencies dealing with world trade and the status of women. California scaled back drastically, transferring $2 billion in welfare and health costs to local governments.

Public colleges and universities in Maryland and other states lost state funds and raised tuition and fees.

Not surprisingly, legislators and governors anguished -- and fought each other -- over cuts and taxes.

Connecticut Gov. Lowell P. Weicker Jr. vetoed three legislative budgets until lawmakers agreed to his demand for a controversial personal income tax. That didn't end the fighting, however, as the state legislature went into special session this week to consider repealing it.

Maine shut down state government, for the first time in history, until a new budget could be agreed on. In all, 11 states missed their legal deadlines for approving budgets.

But the states' fiscal pain, while widespread, has not been universal this year.

The Northeast and Southeast have been harder hit than the Great Lakes, Rocky Mountain and Plains states. States such as Wyoming, Colorado, Kansas, South Dakota and Oklahoma have avoided significant tax increases. Montana and North Dakota cut taxes.

Even Maryland, despite its deep budget cuts, has not yet had to sell a highway. What the legislature and Gov. William Donald Schaefer will do about the looming fiscal 1993 deficit remains to be seen.

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