Ehrlich moves from slots to cuts for budget

$1 billion may be trimmed from programs, agencies

Employee layoffs possible

Governor might not find much excess, analysts say

April 20, 2003|By David Nitkin | David Nitkin,SUN STAFF

Like a boot-camp drill instructor snatching a Twinkie from a pudgy recruit, Gov. Robert L. Ehrlich Jr. is determined to remake Maryland state government into a leaner and more focused operation within the next year.

That means a thorough review of state operations, and the possibility of employee layoffs, reduced Medicaid benefits and the consolidation of departments.

Ehrlich, a Republican, hardened his stand against new taxes when the General Assembly rejected his slot-machine proposal this month. Instead of gambling proceeds, the governor says, the next state budget he writes will be balanced through nearly $1 billion in program cuts and still-to-be-identified efficiency savings.

"You have to prioritize the programs and services that each department provides," said state Budget Secretary James C. DiPaula. "Then you have to make judgments about whether they are consistent with their original mission, whether or not they are still valid or necessary. Then you would move to eliminate those that are no longer necessary."

The premise sounds straightforward. But it's easier said than done, according to budget experts.

"The idea that the structural deficit can be eliminated entirely through spending cuts is one that is often proposed by state politicians but rarely followed over the long run," said budget expert Roy Meyers, a former Congressional Budget Office employee who teaches at the University of Maryland, Baltimore County.

"I don't think there's any evidence at all that states - at least systematically - improve the efficiency of programs during recessions," Meyers said. "The typical decision process is to look for easy cash. And the easy cash is often in programs that help the politically weak."

Ehrlich's promise, Meyers said, "is fueled by braggadocio" rampant after an Assembly session in which the governor won few of his objectives, particularly the slots plan.

Warren G. Deschenaux, the General Assembly's top budget analyst, said the administration could be in for a surprise when it focuses its microscope.

"What they will discover is that there is a lot less of the excess than they might believe that there is," he said.

Schaefer recalls

Comptroller William Donald Schaefer, who recalls with melancholy the nine rounds of cost-cutting he oversaw as governor during the crunch of the early 1990s, said that "to downsize more, by taking money from any agency, it would make them less efficient. Yeah, you could cut - end agencies, destroy agencies altogether."

Others say Maryland, like most states, has plenty of room for savings.

"States around the country went on pretty large spending binges in the late 1990s, and there wasn't a lot of emphasis on efficiency. They got fat, and there are opportunities to wring some of that out," said William D. Eggers, a senior fellow with the Manhattan Institute for Policy Research and a consultant who works with states on reducing spending.

"I've been doing it now for 14 years. I always hear the doom and gloom and how the sky is going to fall," Eggers said. "But it's never happened yet."

The moribund national economy and the state's bleak revenue projections, DiPaula and other Ehrlich supporters say, are providing the governor a rare chance to redraw the state's $22.4 billion budget with his vision of fiscal conservatism. The forthcoming decisions over spending and taxes by Maryland's first Republican governor in nearly four decades could shape the state for years to come.

By law, the state can spend no more than it collects in taxes and other revenues; deficits aren't allowed.

For Ehrlich to achieve his goal, it means cutting about 8 percent, or nearly $1 billion, from the state's $11 billion general fund, which is paid for largely through sales and income taxes.

More than half of general fund money is spent on health, which includes Medicaid, and local aid to counties, predominantly education spending.

Both areas must be reviewed, said DiPaula, which is painful news for municipalities that rely on the state for program funding.

"I do believe that with the governor's commitment to education and to Maryland's most vulnerable citizens, we may have to change some of the long-standing programs and relationships," DiPaula said. "Specifically, that means taking a serious look at the funding formulas for counties and local governments."

About 70 percent of the money that the state sends to local governments pays for primary and secondary education. If Ehrlich fulfills a commitment to the expensive education spending formula commonly known as Thornton, it could mean that counties would have to pick up a larger share of retirement contributions for teachers or see their public safety and health program money slashed.

Local burden

Passing the pain to local governments would be deceptive and irresponsible, but politically smart, said House Speaker Michael E. Busch.

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