State dollars dwindling fast

April 22, 2001|By Barry Rascovar

IS MARYLAND'S budget glass half-full or half-empty?

The governor says things are just fine, that fiscal pessimists will be proven wrong.

He says that talk of a shortfall approaching $2 billion in the 2002 to 2004 state budgets are merely projections and that in the past such legislative extrapolations have been off the mark.

A growing number of state legislators, though, take a far less sanguine view.

They shudder at what the nation's economic slowdown could do to Maryland's fast-flowing revenue stream. And they worry about the governor's spending binges during the good times of the past few years.

Last April, the General Assembly's top financial analysts predicted there would be a $200 million budget gap facing state lawmakers in 2001.

And indeed, that's what happened. The governor submitted a spending plan in January that was $216 million over the legislature's affordability limit.

The problem is that Parris N. Glendening continues to pour money into operating programs that need more funds every year. These may be worthy activities, but they're expensive.

The biggest burgeoning expense is personnel -- 81,514 state employees. Between salary increases, new jobs, health insurance, fringe benefits and other employer costs, Maryland will shell out an extra $537 million for personnel this coming year, jacking up the total to $5.1 billion. Worker expenses consume nearly a quarter of the entire state budget.

And because of the governor's insistence on collective-bargaining laws, state employees are unlikely to be denied a significant pay raise or enhanced benefits in future years, except in the most perilous times.

Yet the state's tax receipts -- which pay for all of this -- are starting to grow at a slower-than-expected pace.

Tax payments on capital gains, for instance, could take a steep tumble next year because of the plunge in technology stocks. Many Maryland investors will record big stock losses this year. They can use those paper losses to wipe out taxes owed on other capital gains or reduce the tax they pay on ordinary income.

An economic slowdown could have a big impact on the state's sales-tax receipts, too. There are already signs of consumer caution in spending habits.

Net effect: Stagnant growth in state income. Yet the state's operating expenses are rising rapidly.

The budget approved by the General Assembly earlier this month calls for an extra $658 million to run government operations. Next year, another $667 million in new money will be needed. Things get worse in 2003 and 2004 because there's no billion-dollar surplus to draw down; those accounts have been drained.

Not to worry, say Glendening officials.

You've got a $130 million cushion in pay-as-you-go construction money that has been frozen till December in case of an economic downturn.

There's $82 million of surplus cash that can be readily tapped.

Two other reserve funds to help the poor could be activated to net $94 million.

The transportation trust fund's excess cash could be diverted for another $141 million.

All these steps just about cover next year's projected shortfall. But none of this assumes a deep slump in tax receipts. If that happens, the governor has other options.

He can reduce spending through job freezes and other belt-tightening moves. He can impose across-the-board reductions. He can abandon pay-as-you-go construction and issue more bonds instead.

But what about the remaining budget gaps projected for the following two years? They total almost $1.5 billion.

Programs would have to be reduced substantially, especially in the costly area of personnel. Another $500 million sitting in a "rainy day" account might be targeted by a future governor, too.

But legislators are sure to resist such a move. Without this safety-net account, Wall Street would almost surely yank Maryland's venerated triple-A bond rating. That's a sacred cow in Annapolis. It won't be touched.

What's a governor to do?

A) Raise taxes.

B) Reinvent state government so it offers fewer services to fewer people but costs a heck of a lot less.

A prolonged recession could make the latter course more likely.

Or a recession could open the doors to legalized slot-machine gambling at Maryland race tracks.

That's one way to create new state revenue without imposing a tax on everyone. A governor wouldn't have to decimate programs and lay off workers, either.

The next governor's menu won't be appetizing. Demands for more money to bolster education, transportation, health, the environment and welfare continue to grow. Paying for these services -- or not delivering on citizens' demands -- will be painful indeed.

Barry Rascovar is deputy editorial page editor.

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