From a budget surplus to a budget deficit?

State outlook: Governor's long-term construction commitments could lead to large shortfalls.

April 21, 2000

QUESTION: How can you turn a $1 billion surplus into a $1 billion deficit?

Answer: By making huge commitments for expensive projects in the future that revenues cannot support.

That's the situation Maryland may face over the next four years.

Gov. Parris N. Glendening, thanks to a surging state economy, went on a spending spree this legislative session. His budget increase of 9.5 percent includes money for college buildings, public schools and for a Washington-area bridge and Metro extension that could create a deep fiscal hole.

Next year, in fact, he'll have to exhaust the state's reserve funds (not counting a 5 percent cushion demanded by Wall Street) to complete the state's 10 percent income-tax reduction and pay for those construction projects.

Even then, the governor could face a shortfall of $200 million, according to legislative analysts.

And in the following year -- 2002 -- the projected shortage balloons to $513 million, with cash reserves no longer available to finance this costly construction.

Annapolis faces a potential cumulative deficit of $1 billion between 2002 and 2004.

The budget outlook could be even worse if Maryland's economic boom slows or the governor and legislature decide to cut taxes or add new spending programs between now and mid-2004.

Short-term, though, the situation appears manageable. Next year's projected $200 million budget deficit can easily be handled through spending slowdowns, judicious cuts or modest increases in targeted taxes or fees.

Much depends on the strength of the U.S. economy. Recent signs of tight labor markets here and nationally could mean wage inflation and slower growth. That could put Mr. Glendening, or his successor, on a fiscal hot seat.

The governor has steered a relatively prudent fiscal course so far. If economic storm clouds threaten, Mr. Glendening may have to reconsider parts of his ambitious building program.

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