State budget forecast looks even grimmer

Decline in tax revenue means $218 million less

`Very dismal fiscal condition'

Panel chairman may kill all bills that cost state

March 12, 2003|By David Nitkin | David Nitkin,SUN STAFF

State leaders burdened by a paralyzing fiscal crisis received more bad news yesterday: A slowing economy means $218 million less than expected to balance the budget.

New figures released by the Board of Revenue Estimates -- showing a dip in income and sales tax collections in the current year's budget and next year's -- will likely translate into deeper program cuts and increases in taxes, officials said.

Reaction was swift as word of the latest figures spread.

Sen. Ulysses Currie, chairman of the Budget and Taxation Committee, said he would probably kill every bill that could cost the state money, a drastic measure that would affect scores of proposals.

The process began yesterday, when several bills that were scheduled for a vote were delayed. "In looking at bills that have costs, we have to hold them here and set an example for the Senate," Currie said.

Leaders in the House of Delegates had to reconsider a $600 million-to-$800 million package of spending cuts and new revenues being cobbled together to replace Gov. Robert L. Ehrlich Jr.'s slot-machine gambling plan. The House is scheduled to debate its version of a $22.8 billion budget on the floor next week and forward it to the Senate.

"We are in a very dismal fiscal condition, and it's not clear whether the decisions we're making now address some of the funding commitments we've made," said Del. Howard P. Rawlings, chairman of the Appropriations Committee.

Even some of the state's most notable commitments -- including a promise for public education -- were up for discussion yesterday in light of the new revenue numbers putting next fiscal year's projected shortfall at about $1.4 billion.

Comptroller William Donald Schaefer, a loyal Ehrlich backer, said the governor should consider a delay in the landmark education funding plan that the General Assembly approved last year to address inequities among schools in wealthier and poorer areas. The so-called Thornton plan would eventually cost $1.3 billion yearly.

"I think he ought to stretch it out a little bit," Schaefer said, adding that the governor could increase the number of years for the program while still arguing that he supports its intent.

Ehrlich said yesterday that the state's worsening outlook boosts the chances for his much-maligned slots-at-racetracks plan, which he estimates would yield $720 million yearly for schools when fully in place.

"It certainly gives another boost to slots," Ehrlich said. "I think the slots bill is looking better and better."

Ehrlich and his aides say they are working with General Assembly leaders on deeper cuts. The discussions began last week, when the governor created a $230 million hole in his budget by reducing the up-front licensing fees he would charge to racetrack owners.

"The depth of this problem was unanticipated by all of us," said budget secretary James C. "Chip" DiPaula. "It took us years to get into this problem; it's going to take us more than two days to get out of it."

Yesterday's news complicated the decision-making that is under way in the House. Appropriations subcommittees have been meeting since Friday to try to trim about $300 million from Ehrlich's budget.

House leaders say they are considering a plan to cut $100 million that is now spent to repay bonds borrowed by the state for construction projects. Such a move would force the state Board of Public Works to increase Maryland's property tax -- a small portion of homeowners' tax bills -- to recover the difference and make good on its debt obligations.

Also yesterday, an education subcommittee made a further $37 million cut to the university system for the 2004 budget year, on top of a $67 million reduction in the current budget.

University System Chancellor William E. Kirwan said the cuts threaten to dismantle a decade of progress. "If they were to stand, it would mean some kind of combination of a significant new tuition increase and 750 to 1,000 layoffs," he said. "There is no more fat in our budget."

Cities and counties could be in for some good news, however. House leaders say they are considering tapping into the state's "rainy day" account to restore about $115 million that Ehrlich proposed withholding from municipalities. Most of the money would pay for local highway projects.

Rawlings said Maryland could keep its high marks with the bond rating agencies if lawmakers spell out a plan to replace the rainy day money in two years.

Baltimore Mayor Martin O'Malley called the restoration of transportation money "good news." But he added that he would "like to see a discussion of all of the options, including repealing the income tax cut," which was finalized last year.

Ehrlich has ruled out increases in sales or income taxes, even though House leaders and leading Democrats like O'Malley disagree.

"Wise men change their minds, and it's a sign that they're getting wiser," the mayor said. "People can grow, even in Annapolis."

Senate President Thomas V. Mike Miller Jr. is also not ruling out new taxes, especially if the House reverses course and supports a slots plan.

Additional components of the House budget-balancing plan will also be voted on this week.

Del. Sheila E. Hixson, chairwoman of the Ways and Means Committee, said the package would include closing corporate loopholes, a tax on HMO policies and an income tax surcharge on individuals earning more than $200,000 yearly and families earning more than $250,000.

A committee vote on the revenue bills is expected tomorrow.

Sun staff writers Alec MacGillis and Stephanie Desmon contributed to this article.

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