State surplus shrinks by $104 million

Weak stock market causes tax revenue dip

$1 billion shortfall could be near

August 30, 2002|By David Nitkin | David Nitkin,SUN STAFF

Maryland finished its last budget year with a smaller surplus than projected because of an anemic stock market that suppressed income tax collections, creating a bigger-than-expected financial problem for the next governor, according to figures released yesterday.

Figures from the state comptroller's office show that Gov. Parris N. Glendening or his successor must cut the current state budget, which took effect July 1, because the surplus from the previous year was less than expected.

Glendening and state lawmakers planned to use $413 million in leftover funds from the 2002 fiscal year, which ended June 30, to balance the current year's budget. But the comptroller's office said yesterday that the budget year ended with $309 million unspent.

The $104 million difference must be made up through reduced spending on programs in the $21.7 billion budget, state officials said yesterday. Maryland is required by law to have a balanced spending plan.

"There will have to be some adjustments to spending made," said Raquel Guillory, a spokeswoman for Glendening. "It was not unexpected."

Comptroller William Donald Schaefer said the winner of the gubernatorial election - the likely candidates are Democrat Kathleen Kennedy Townsend and Republican Robert L. Ehrlich Jr. - will face "the most difficult time of any governor in the past 15 years."

"It's the worst fiscal situation I've seen," said Schaefer, who as governor in the early 1990s grappled with the last recession.

Legislative analysts have predicted that the next governor and General Assembly will face a $912 million shortfall - the difference between anticipated revenues and expenses - when they meet next year to approve the state's 2004 budget.

The numbers released yesterday indicate that the shortfall could soon surpass $1 billion.

Budget analysts are likely to reduce their estimates of some tax collections - particularly income tax - before the year is out, based in part on the trends that led to the lower surplus this year.

"Overall, [revenue estimates] are definitely coming down," said David Roose, director of the comptroller's Bureau of Revenue Estimates. "This problem is not going to go away by itself, no matter how well the economy does in the next year."

The main reason for the weak numbers is personal income taxes, which came in $217 million below the estimate of $4.9 billion. Most of the shortfall was caused by lower capital gains taxes, the result of the stock market slump.

Sales tax revenues met their target but were less than 1 percent higher than those a year earlier.

Maryland's budget crisis is a topic in the race for governor.

Ehrlich is calling for 4 percent cuts at most agencies next year and says spending by Glendening has grown unchecked. Ehrlich said that "the blame for this situation rests squarely on the steps of Maryland's State House," because spending has risen faster than tax revenues.

Townsend has said she would freeze spending in most areas next year, excluding education and public safety. But she predicts a relatively quick return to prosperity.

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