ANNAPOLIS -- The governor's top economic adviser warned yesterday that Maryland will not "grow its way out" of its budget deficit and must make deep and permanent cuts in state spending.
In a bleak assessment of Maryland's economy, Mahlon Straszheim said the state will take longer to emerge from the recession than will the nation as a whole.
"It's extremely unlikely the state economy could turn around instantly," said Dr. Straszheim, a University of Maryland economics professor who recently began advising Gov. William Donald Schaefer.
In fact, Maryland employment will not grow significantly until mid-1993, according to the 18-page report by Dr. Straszheim and fellow University of Maryland economist Lorraine Sullivan Monaco.
The state's growth in non-farm employment will not catch up to the national rate until about 1994, the report said.
The same forces that led to the state's above-average growth in the 1980s are now contributing to its below-average economy, it said.
The construction, service, financial and retail industries
expanded rapidly in the 1980s, to the point that they made up two-thirds of the Maryland economy. Now, those industries are contracting nationwide, especially in the service sector. That has hurt Maryland more than other states whose economies are less dependent on those industries.
In fact, financial, retail and professional businesses have continued reducing their work forces, causing Maryland's recovery to lag "badly" behind the nation's, the report said.
Those economic trends affect the amount of tax dollars the state can expect to collect.
If the state wants to stem the red ink, officials must slash $500 million from the budget this year -- with the understanding than none would be restored, Dr. Straszheim said.
During the last 2 1/2 years, the state has cut more than $1.5 billion from its budget in seven attempts to balance the books. Some of those cuts, however, have been offset by legally required increases in aid to education and other programs.
Also, the budget formulas now used by the state require in some cases that money for certain items be "restored" on paper -- only to be cut again -- every year. To make those cuts permanent, the legislature would have to change state law.
The report also concludes that the state work force probably should be reduced again. "With private sector employment again projected to decline [by July 1], reductions in public employment will likely be required as one means of reducing the deficit," it said.
Mr. Schaefer expressed reluctance yesterday at the prospect at firing a significant number of state employees, who have had to work longer hours while their wages remained frozen. "First of all, I don't want to hurt state employees," he said, although he acknowledged that some firings may be "inevitable."
The governor said he expects some people to doubt that the deficit is as high as he and Dr. Straszheim say it is, especially since the General Assembly raised taxes this spring.
"People are going to [have to] face reality, and that is a $500 million deficit," he said.
"The tax money went mostly to the local subdivisions, and the state got very little benefit from it," he said, even though local governments dispute that assessment.