More red ink for Maryland

July 07, 1992

Blame it on the persistent recession, if you wish. Or the efforts of state political leaders to make a bleak situation look tolerable. Either way, there's no denying that Maryland's budget woes are still here -- already some $70 million in debt as the new fiscal year got under way July 1, with projections of a $240 million shortfall by the time the books close in late June next year.

The cause of this latest flow of red ink is the state's creaking economy, still reeling from the onslaught of corporate layoffs during the recession. Most of the revenue shortfall is due to lagging income-tax receipts. People thrown out of work don't pay much to the tax collector. In fact, they often wind up with hefty tax refunds.

All of this was well known last December. Yet the state's Board of Revenue Estimates produced a forecast that predicted 6 percent growth in income-tax receipts for this calendar year (and 7.5 percent next year). Given a chance in March to back down from this overly optimistic assumption, the board clung to its predictions. In fact, it even increased its revenue estimates for the year by $13 million.

The board is being proved wrong -- by about a quarter-billion dollars. The legislature's chief fiscal adviser says the shortfall could shrink in the months ahead, but there will remain a sizable gap. The state may close its books for the fiscal year that ended June 30 with its first deficit since 1968, and only the second since the Depression.

Disappointing economic numbers continue to mar Maryland's recovery efforts. That could make matters worse in the revenues column. It could also add to the state's expenditures if welfare and social service costs start rising again.

State officials do have one recourse: a $50 million "rainy day" fund set up by the legislature this spring just in case a new deficit appeared. Little did they suspect the red ink would be seen so rapidly.

Other steps are up to Gov. William Donald Schaefer, who is likely to freeze vacant positions and put a hold on non-essential spending. Local officials fear the governor may also cut local aid to bring state revenues and expenses into balance.

This is not happy news for Mr. Schaefer and General Assembly leaders. Maryland at least continues to tread water, while states like California and Illinois seem to be sinking under new deficits. But layoffs and program closings remain distinct longer-range possibilities. Without a sustained economic upturn, Maryland officials have little choice but to reduce government services -- again.

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