Md. officials put potential deficit at $240 million Fiscal '93 promises to be yet another lean year for state

July 01, 1992|By John W. Frece | John W. Frece,Annapolis Bureau

ANNAPOLIS -- State government begins its new fiscal year today, and it already is facing a potential deficit of nearly a quarter-billion dollars.

For anyone who thought the tax increases approved by the General Assembly just two months ago or the long-awaited recovery from the national recession would somehow combine to put an end to Maryland's nagging financial problems, think again.

From all appearances, another lean budget year is in store for Maryland.

William S. Ratchford II, the legislature's chief budget adviser, told a Senate committee yesterday that he expects the state to close its books on fiscal 1992, which officially ended yesterday, at least $70 million in the red.

On top of that, in a forecast one of his aides described as "very preliminary," the Department of Fiscal Services predicted that revenues in fiscal 1993 would fall short of budgeted expenditures by an additional $170 million.

That forecast even assumes revenues will increase by a relatively rosy 5 percent, but still below the 6 percent rate on which the fiscal '93 budget was based -- a rate that virtually no one now thinks is possible.

That means the Schaefer administration and the legislature begin the new budget year knowing that over the next 12 months they must curtail purchases, leave vacant jobs unfilled, squeeze spending once again and take other measures to eliminate a combined shortfall now pegged at $240 million.

Sen. John A. Cade, R-Anne Arundel, suggested that the administration begin immediately discussing ways to cut spending because, he said, "I don't think you're going to see much enthusiasm for revenue increases."

The primary culprit has been a continuing decline in the state's largest single source of revenue, the personal income tax.

Collections appeared to be on track until the April 15 tax deadline passed and receipts suddenly dipped sharply below projections, Mr. Ratchford said.

Ann Franklin, a Department of Fiscal Services' economic forecaster, said the income tax predictions were off in part because they were based on U.S. Bureau of Labor Statistics' figures that estimated Maryland lost 25,000 jobs during the recession.

The actual figure, she said, turned out to be three times that bad: 75,000 jobs lost. Among the hardest hit areas was the state's construction industry.

With fewer people working, fewer paid taxes, and those who did pay were not required to pay as much.

The amount of income tax that employers withheld from paychecks went down, and the amount of refunds that the state had to pay to taxpayers shot up. The state had expected to shell out about $558 million in refunds, but to date the figure is $646 million, or $88 million more than expected.

Mr. Ratchford also warned the lawmakers that long-term projections for fiscal years 1994 and 1995 show the deficit problem only worsening. The only good news in the Fiscal Services briefing was that the large and steady increases in Medicaid and welfare enrollments of the past couple years appear to be tapering off.

Since the beginning of the 1992 calendar year, the rate of increase in enrollment in both Medicaid and the Aid to Families with Dependent Children program has declined compared with the same month the previous year, said budget analyst Warren Deschenaux.

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