Recession Pummels the States

April 26, 1992

Maryland is not the only one being buffeted by the stormy economic recession: states across the country are experiencing their most severe budget crunch in 15 years. Worse yet, there might not be much rebound.

State governments have been enacting record tax increases while concurrently imposing record spending cuts just to keep the books balanced. Over the past three years, taxes have been raised by $25 billion even as 13 states, including Maryland and Virginia, saw an actual decline in spending in fiscal 1992. Another four states, including Delaware, are anticipating spending drops in the next fiscal year.

Under normal circumstances, this would point to bright days ahead: Cutting the size of government will reduce long-term expenses while higher taxes should generate more revenue as the economy recovers. But a return to good economic health could be slow. Economists in Maryland and elsewhere say few states will ever again experience the explosive growth rates of the booming 1980s. That's shown in the states' 1993 budgets, which reflect an anticipated growth rate of 3.6 percent -- compared with 7.4 percent during the 1980s.

States were pummeled not only by falling revenue as the jobless rate rose and retail sales slowed, but by the soaring demand for more government services. Most dramatic were the continuing rises in Medicaid payments, the prison population and welfare recipients. AFDC, the main welfare program, for instance, leaped 24 percent in just 17 months.

Even now, as signs point to an easing of recessionary pressures, the states won't see much improvement in revenues for 12 to 18 months because of the lag time in collecting taxes. It could mean another rough year for Maryland and most other states.

Unless this picture brightens considerably, state and local governments may have to reassess the kinds of services they deliver to citizens. Fewer health programs, more meager help for the poor and a substantial reduction in aid to the schools could be unavoidable. We may not have seen the last of higher fees and taxes, either.

In the decade of the 1990s, states must learn to stretch tax dollars. Thirty-five other states have panels similar to Maryland's Butta commission studying ways to reduce the size of government and improve efficiency. Privatization could become a favorite theme. Innovative approaches to all kinds of traditional programs could flourish.

States are faced with either changing their ways of operating or restricting basic services. That's why it is imperative for Gov. William Donald Schaefer and his colleagues to forge ahead with creative proposals to make government cheaper yet more effective. That's what citizens want. That's also what the economic realities demand.

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