People, places and prospects that will shape Maryland's economy in 2003 ...

What To Watch

January 12, 2003

State budget crisis

Gov.-elect Robert L. Ehrlich Jr. enters office this week facing plenty of tough issues. One of the biggest is erasing Maryland's $1.8 billion budget deficit.

That won't be easy. But under state law, Ehrlich has no choice but to trim spending or find ways to generate revenue until the budget is balanced.

Most experts predict layoffs, especially in Baltimore where a large number of the state government's 108,956 employees work.

But Ehrlich doesn't want to cut people or raise taxes. He's looking for alternatives, especially allowing slot machines at state racetracks. He figures that 2,500 slots could pump $800 million a year into the state's coffers. But slot machines would need the legislature's approval.

Other plans to close the gap include selling the state's airplane, its 114-foot yacht and luxury sky boxes at Oriole Park and Ravens Stadium. Those sales could generate $5 million. Other state assets that could go on the selling block include the 28-story William Donald Schaefer Tower at 6 St. Paul St., which is used as a state office building.

Housing

The housing industry's record-setting pace during the past two years has kept home prices growing by double-digit percentages -- a pace so rapid that many observers doubt that sales and values can keep it up in 2003.

While many experts still believe the economy will be able to lean on a healthy housing industry this year, most builders and real estate agents think the market will soften as mortgage rates increase. They still expect strong sales in Maryland, though perhaps not at the record-setting levels of the past two years.

Even so, Maryland's weak supply of homes for sale and strong demand from first-time homebuyers and bargain-hunting Washington-area shoppers are the right ingredients for a healthy market. Home values are likely to stop growing at record paces, experts say, though most predict that prices will increase.

Key questions remain for mortgage interest rates, which hovered near 6 percent for a 30-year fixed loan in 2002. Most predictions call for the rates to creep toward 7 percent by the end of 2003. And buyers -- who at times have had to pay more than the asking price to secure a home -- may see some minor relief in a market that nonetheless figures to remain a boon to sellers.

M&T Bank Corp.

M&T Bank Corp., sewing up its acquisition of ailing Allfirst Financial Inc., will enter the region this spring brimming with optimism. Executives of the Buffalo, N.Y.-based bank consider the deal one of their most exciting, allowing M&T to dive into the vibrant Washington-Baltimore market with plenty of muscle.

When the deal is completed -- sometime in April -- M&T will be propelled from being the nation's 26th-largest bank to 18th-largest, with $49 billion in assets and more than 700 branches in six states and the District of Columbia.

But folding Allfirst into its operations won't be easy. Reviving morale at the Baltimore bank will be among the challenges.

Allfirst was slammed in February by a currency trading scandal that racked up $691.2 million in losses. Though trader John M. Rusnak pleaded guilty to bank fraud, an independent probe pointed to lax oversight, poor supervision and a failure to invest in adequate staffing and technology. In the aftermath, the bank's top two executives left, a handful were fired, and other executives opted for early retirement.

There will be layoffs, too, as M&T whittles away Allfirst's overhead. M&T executives are known for running a tight ship, having built one of the best big banks in the nation. But it could take many months for M&T to hit its stride in Baltimore.

Wall Street

Market watchers say "no way" to a fourth straight year of negative returns in the stock market. That hasn't happened since the early years of the Great Depression, and many positive signs suggest that history won't repeat itself.

The economy is slowly but surely on the mend, market experts say. Consumers may be weary, but businesses are poised to start spending. Corporate earnings are likely to rise this year, and President Bush wants to exempt dividend income from personal income tax.

All that indicates gains of 8 percent to 10 percent for the Dow Jones industrial average, many say. Of course, all bets are off if there is war with Iraq, a recession or a terrorist attack on U.S. soil.

CareFirst

CareFirst BlueCross BlueShield, a nonprofit since it was created in 1937, continues its quest this year to convert to for-profit operation and sell itself to WellPoint Health Networks Inc., a publicly traded Blue Cross operator based in California.

Owings Mills-based CareFirst -- which insures 2 million Marylanders and more than a million others in Delaware, the District of Columbia and Northern Virginia -- says it needs to be part of a larger entity to thrive. Opponents of the deal fear that a for-profit insurer would fatten its profit margin by raising premiums, cutting reimbursements to doctors or rejecting more claims.

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