Schaefer says he's optimistic despite need for budget cuts or higher taxes.

ANOTHER $220 MILLION SHORTFALL

December 05, 1991|By William Thompson | William Thompson,Evening Sun Staff

The budget news was about as bad as it gets. But Gov. William Donald Schaefer, who had been bracing himself for the grim economic forecast for weeks, took it on the chin with a grin.

Told today that the 1992 state budget faces yet another $220 million shortfall, Schaefer leaned back in his chair and waxed philosophic.

"I'm not down," he told members of the state Board of Revenue Estimates, a three-member panel that releases periodic reports on the state's economic condition. "For the first time, I'm optimistic. People will say, 'He's crazy.' I'm not."

In addition to about $1 billion already either cut or shifted in state spending during the past year, the BRE reported that another $140 million will have to be trimmed to balance the general fund budget by the time the fiscal year ends in June.

BRE members also reported that Medicaid costs to the state are expected to rise above anticipated levels by nearly $80 million, bringing the total budget conundrum to $220 million. Much of the Medicaid cost is likely to be "rolled over" or attached to the state's 1993 fiscal budget.

Schaefer, who in 12 months has become a veteran budget slasher with five rounds of cuts under his belt, said he is preparing to make a sixth series of what fiscal experts call "cost containments."

Pointing to a chart listing the latest revenue figures, a relaxed Schaefer joked, "It can't get much worse."

But, he continued, "I'm actually optimistic. It's a funny thing, I think

I can do it. I know I can do it."

Schaefer would not talk about specific cuts, but he noted that state spending is greatest in education, health and housing.

For the first time since his plan to raise $800 million in new taxes was killed by the Maryland General Assembly earlier this year, Schaefer publicly revived the notion of increasing the state sales tax as one way to raise additional money.

Some lawmakers have suggested boosting the sales tax from 5 percent to 6 percent, which would bring in $300 million annually.

Schaefer said he is willing to consider such an increase, but only if "exemptions [to the tax law] are cut out." Many goods and services are not taxed in Maryland under current law.

"That's my first reference to a tax," Schaefer said, adding that now he expects to be accused of wanting to spend more money.

"Yep," he continued, "I want to spend some money on those who can least afford to have their money cut, like GPA [General Public Assistance], the homeless, the retarded."

Schaefer acknowledged that the financial news is bad but said his spirits are high.

"Some of you saw me smile today," he said. "That's the first time in a while."

The BRE, which consists of Comptroller Louis L. Goldstein, Treasurer Lucille Maurer and Schaefer's budget director, Charles L. Benton, blamed a stubborn economic recession for the latest revenue numbers.

Compared with last year's fiscal measuring stick, Maryland employment and earning levels are down, restricting the flow of revenues from income and sales taxes.

The recession was blamed for cutting into nearly all other sources of state revenues as well. Corporation income taxes fell below estimates, as did fees paid on franchises.

Lottery revenues remained strong. In fact, they were the only key source of general fund income to post an increase. Fiscal experts had predicted the state would get about $310 million in lottery revenues after expenses. They raised that projection by $18 million today.

Falling short

The state Board of Revenue Estimates predicts funding for the budget will drop by $140 million. Along with spiraling Medicaid costs, Maryland now faces a total revenue shortfall of $220 million. Here's why:

* Individual income taxes are down $105 million

* Corporate income taxes are down $5 million

* Sales and use taxes are down $32 million

* Franchises, excises and fees are down $16.5 million

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