Md. counties, city warned to brace for more aid cuts

July 12, 1992|By John W. Frece | John W. Frece,Annapolis Bureau Staff writer William F. Zorzi Jr. contributed to this article.

ANNAPOLIS -- State legislators have begun warning Baltimore City and the 23 counties to get ready for another round of deep and probably permanent cuts in state aid because Maryland so clearly overestimated the amount of tax revenues it will receive.

The chairmen of the House and Senate budget committees said this past week that a reduction in state spending, including a cut in aid to local governments, is the only way to eliminate a deficit already pegged at $240 million in the budget year that began July 1.

There is no way politically that the General Assembly will consider another tax increase in 1993, much less in the election year of 1994, the committee chairmen say.

In April, the legislature approved nearly a half-billion dollars in higher gas, sales and income taxes, and gave local governments authority to raise $288 million more in local taxes to make up for a $249 million reduction in state aid.

Local jurisdictions now have the power to raise the piggyback income tax rate from 50 percent to 60 percent of state income tax.

Already, five counties -- Allegany, Baltimore, Montgomery, Prince George's and Talbot -- have voted to raise their piggyback taxes.

Additional cuts in state aid are likely to force more local governments to raise taxes to make up the difference, the budget committee chairmen agreed.

"That is exactly the direction you're going to see things heading," predicted Sen. Laurence Levitan, the Montgomery County Democrat who chairs the Budget and Taxation Committee. "You're just not going to get this legislative body to come back in and put more taxes on the books."

Local officials, especially in the state's largest jurisdictions, are already painfully aware of what's headed their way.

Most have either established "rainy day funds" as a hedge against further cuts or have trimmed spending so they can set aside any surpluses for the same reason.

"We've been expressing our concern throughout the entire budget process that the revenue estimates were high," said Harford County Executive Eileen M. Rehrmann.

Baltimore has little money -- $1.6 million -- set aside as a hedge but so far has refrained from raising its piggyback income tax rate.

Sen. John A. Pica Jr., a Democrat who chairs the city's Senate delegation, said he expects that to change if the city is asked to absorb anotherround of cuts.

"I think there will be enormous pressure on the mayor (Kurt L. Schmoke) to increase the piggyback rate to 60 percent," he said. "It definitely will not come from the property tax. It is either raise the piggyback tax, or lay off employees. It is a political decision the mayor has to make."

City officials said it would be premature to predict how any cuts in aid would affect Baltimore and how the administration would deal with them. Mayor Schmoke was out of the country last week and could not be reached for comment.

Mr. Pica said that if state aid is cut again, he hopes the governor and the legislature will consider the wealth of each jurisdiction so that poorer ones such as Baltimore can be protected as much as possible.

During this year's legislative session, many lawmakers expressed concern that the revenue estimates were overly optimistic. But faced with the dilemma of further tax increases or deeper spending cuts if the revenue estimates were revised downward, the General Assembly ignored reality and voted for a budget few believed would remain in balance for long.

As if to prove it, legislators threw $50 million into a rainy day fund, fully expecting to draw it out before the year is over.

"We did the rainy day fund because we felt there was a greater possibility of downside risk than upside," acknowledged Appropriations Committee Chairman Charles J. Ryan Jr., a Prince George's Democrat.

Maryland's latest financial problem stems from a spending plan for fiscal 1993, which began July 1. The budget is based on the assumption that tax revenues will be 6 percent higher than in the previous year. Income tax revenues alone were predicted to increase by 6.8 percent.

These days, no one says they think that is possible, and most contend they never did.

Gov. William Donald Schaefer said he believes the best the state can hope for is a 4 percent growth in revenues. Many county budget officials think even that is too good to be true, predicting growth rates instead in the 1 percent to 3 percent range.

The 6 percent estimate "wasn't realistic from day one, and it isn't realistic today," said Dennis F. Parkinson, a former deputy budget secretary for the state and now budget chief for Anne Arundel County Executive Robert R. Neall, a Republican.

Even if revenues increase at a 4 percent rate, the state would find itself short an estimated $113 million. At 3 percent, the shortfall would grow to $171 million; at 2 percent, it would be $230 million.

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