Budget crunch views differ

Townsend favors spending freeze

Ehrlich eyes cuts

Projected $900 million shortfall

Both plan to announce specifics after primary

Issues 2002

August 12, 2002|By Howard Libit | Howard Libit,SUN STAFF

Maryland's leading candidates for governor are offering starkly different visions of the state's budget woes and how they would balance the books if elected.

Republican Robert L. Ehrlich Jr. portrays a state in which spending has been allowed to grow unchecked. He is calling for budget cuts of at least 4 percent for most agencies next year, as well as the legalization of slot machines at racetracks and an eventual scaling back of some government services.

Democrat Kathleen Kennedy Townsend sees the state facing one more bumpy year, forcing spending and hiring to be frozen in most areas through June 2004. But she then foresees a resurgence of economic growth restoring the bountiful budgets of the late 1990s.

Both candidates talk of reviewing the budget for wasteful spending -- Ehrlich calls it a "show-cause process," Townsend labels it a "top-to-bottom management review" -- and they've avoided making very many expensive campaign promises.

But with less than three months to go until the November election, neither candidate has laid out all the specifics of a plan for dealing with what is shaping up to be Maryland's most difficult budget crunch in a decade. Both campaigns promise more detailed fiscal plans after next month's primaries.

Legislative analysts project that revenues will fall at least $900 million short of spending in the fiscal year that begins July 1 -- the first budget facing the candidate elected governor in November.

The analysts hint that when the latest estimates of tax collections and other revenues are released next month, Maryland's projected shortfall could be even worse, perhaps exceeding $1 billion. The state's budget for the current year is $21.7 billion, but only about half of that is in the general fund operating budget -- the portion driven by tax revenues and covering education and most state services.

State auditors are still closing the books on Maryland's just-completed fiscal year, and those revenues also could fall short of projections -- cutting into the surplus that is being counted on to keep this year's budget balanced.

"We're spending more on current operations than we're receiving in current revenues," says Warren G. Deschenaux, the General Assembly's chief fiscal analyst.

The state Constitution requires the governor and lawmakers to approve a balanced budget each year, and the national bond agencies have enough confidence in Maryland's fiscal future that they continue to give the state their highest ratings.

Nevertheless, calculations by Deschenaux's office indicate that only 95 percent of spending in this year's general fund budget is covered by incoming tax collections and other revenues. Maryland's rainy-day fund and other one-time sources are being tapped for the rest.

For next year, 93 percent of projected spending would be covered by projected revenues -- a trend that can be sustained only as long as the state has money left in its reserves.

Representative Ehrlich says the gap between spending and revenue will require severe steps. "We've grown way out of proportion to our means over the last eight years," he says, relying on taxes from the stock market boom that have dried up. "A difficult situation calls for, in some cases, draconian means."

The Baltimore County Republican says that he'll ask anyone who wants to be a Cabinet secretary in his administration to identify at least 4 percent cuts -- though he calls that a "flexible" target likely to exclude schools, public safety and health care.

Ehrlich rejects "a massive tax increase," though he says he is open to a possible gas tax increase to fund transportation projects and would look at "filling holes" in products and services exempt from the state sales tax. He also says large tuition increases ought to be considered for out-of-state residents.

For rising health care costs for Maryland's poor, he suggests the state could use $1 billion from the sale of CareFirst BlueCross BlueShield, if that is approved by the state insurance commissioner. Townsend opposes the sale. Ehrlich also raises the possibility of privatizing some state assets, including Baltimore-Washington International Airport.

But the biggest budget difference between Ehrlich and Townsend involves a potential source of new revenue -- legalizing slot machines at Maryland racetracks. Ehrlich predicts that could raise between $200 million and $400 million, and he would use the new dollars to help fund the Thornton Commission plan to substantially increase spending on public schools.

"Marylanders' money is already going to West Virginia and Delaware, and it will soon be going to Pennsylvania. And it's paying for important services in those states," Ehrlich says. "We should be keeping those dollars here in Maryland, paying for our needs."

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