Interesting Times for the State's Budget Beavers

PETER A. JAY

December 02, 1991|By PETER A. JAY

ANNAPOLIS. — Annapolis-- There's a lot of gloom and doom around here just now because the State of Maryland, like some other states and many households, is having trouble balancing its budget. But the situation really isn't as bad as all that. It may even be an opportunity in disguise.

The problem is both short-term and long-term. In the short run, the state government is facing a deficit of between $150 and $200 million for the current fiscal year, which ends next June. That's manageable, in a $6 billion budget. There will be screams -- the Schaefer administration can be expected to propose reductions that will maximize the screams, not minimize them -- but the job will get done.

The more significant challenge is in eliminating what's become known as the ''structural'' problem -- the widening gap, looking ahead several years, between projected expenditures and projected revenues. This looks like $700 to $800 million a year. Here's where the great opportunity lies.

Maryland, like other states, has made open-ended commitments spend money based on the premise that revenues will automatically increase from year to year. Now that revenues aren't automatically increasing, it's in trouble. It has to reduce those commitments or levy more taxes. Public sentiment clearly favors the former, and the legislature is getting that message.

When the General Assembly convenes here in January, it will start work immediately on the fiscal '93 budget, for the year beginning July 1. Right now, that budget appears to be $699 million out of balance. The legislature is dubious about new taxes, and the economy isn't expected to rev up enough, soon enough, to produce substantial new revenues from existing sales and income taxes. So, what to do?

One idea being seriously discussed here would be to ''level-fund'' the '93 budget. That would mean creating no new jobs, no raises of any kind, and no increases -- promised or not -- in existing programs. It wouldn't require major layoffs. This is what a private business would do, if it could. In Maryland's case, it ought to be enough to balance the budget for 1993.

Much of the burden of a level-funded '93 budget would be carried by the State's 75,000 or so employees -- but not all of it. Only a little more than one-quarter of the state's expenditures are for salaries. Local governments, which spend perhaps three-quarters of their budgets for salaries and which receive substantial grants from the state, would feel it too. So would those who sell goods and services to the state, and of course those who receive state services.

It ought to be remembered as the budget discussions go on that the cost of maintaining one state employee, including wages and benefits, exceeds $41,000. Eliminating 2,000 jobs, as already proposed for the current fiscal year, should therefore save $82 million annually, at least if a proportionate number of high-paying jobs are among the 2,000 eliminated.

No doubt state employees, and their various constituents, will be taking part in the traditional Monday-night protests around the statehouse, once the Assembly session begins. That usually manages to polarize people, although not always in the way the protesters intend.

But well before that happens, it ought to be pointed out that the folks on the state payroll are neither half-asleep time-servers, as the most vigorous budget-cutters sometimes describe them, nor the underpaid martyrs public-sector unions purport to represent. They're just people, like the rest of us, suffering the unexpected blows of difficult times, and for the most part deserve sympathy and not opprobrium.

Generally, public employees would like to see the state tax its way out of its difficulties. That could be done. Raising the state sales tax from the current 5 percent to 6 percent might raise as much as $300 million. Taxing services, which proved a political booby trap in Florida, might raise more millions.

(The legislature is scared to death of trying to tax professionals, such as accountants and lawyers. And even though its fiscal experts think a tax on consumer services, such as auto repair, could raise at least $120 million a year, it probably won't venture into that minefield either.)

Then there's the income tax, which the preposterous Linowes commission saw as a potential cash cow. Raising the top rate on incomes over $30,000 from 5 to 6 percent might raise $200 million, the number crunchers say. The same raise on incomes over $100,000 might raise $65 million.

But there are problems there too. Among neighboring states, Pennsylvania has a 6 percent sales tax already, but Delaware has none at all, and Virginia's is 4.5 percent. And as Maryland is already in the top 7 or 8 states in the nation in total tax burden per resident, the consequences of further major increases in any tax are hard to calculate. They could knock the state's economy, already reeling, to its knees.

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