Surplus of over $1 billion reported

State comptroller says half has been allocated

Ehrlich wants to reduce taxes

August 26, 2005|By David Nitkin | David Nitkin,SUN STAFF

As the regional economy chugs forward, the state of Maryland finished the past budget year with a $1.2 billion surplus, according to figures released by Comptroller William Donald Schaefer yesterday.

The final accounting for the 2005 fiscal year, which ended June 30, provides the governor and state lawmakers with the best news they've had since taking office in January 2003. At the time, a financial downturn prompted a state hiring freeze and some program cuts.

Gov. Robert L. Ehrlich Jr.'s office reaffirmed yesterday that he hoped to return some money to Marylanders through a tax reduction. The most likely offering: a reduction in the state portion of property taxes, which was raised an average of about $120 yearly for a single-family home during the governor's first year in office.

"The answer will always be `yes' to that question" of whether the governor supports a tax cut, said Shareese N. DeLeaver, an Ehrlich spokeswoman. The governor's budget proposal for next year has not been finalized, she said.

But even as the administration promoted the state's return to fiscal health, Schaefer, who opposes a tax cut, and other officials sounded a cautionary note. Much of the surplus has been spent in the current year's budget, they said, and there is no guarantee that a housing boom and other positive economic trends will continue.

Schaefer said yesterday that a more accurate figure for discussion was $603 million. That's the amount of the surplus that has not been allocated and is available for spending, he said. Schaefer said the administration's top budget official asked him to promote the $1 billion figure as Ehrlich did, but he said he could not do so.

"My figures have to be accurate," Schaefer said. "They thought the billion would look better, and it would, but that's not what we're here for."

State Treasurer Nancy K. Kopp endorsed Schaefer's version of budget numbers. Ehrlich, she said, "was being overly enthusiastic."

A month ago, Ehrlich pre-empted the comptroller's annual announcement of final budget numbers by publicizing a $1 billion surplus and claiming partial credit for helping restore fiscal discipline to Annapolis.

Ehrlich's office maintained yesterday that it is still accurate to talk about a billion-dollar surplus, but it did not pressure the comptroller to alter his news release, DeLeaver said.

Tax collections in almost all areas exceeded projections, officials said, creating a larger surplus than had been anticipated as recently as April, when state lawmakers were finishing their work on the current budget.

Income taxes came in at $6.2 billion, higher than the projected $5.9 billion. Sales taxes were $20 million more than expected, and the lottery took in nearly $10 million more than expected.

Ehrlich, a Republican, was elected in 2002 on a pledge to bring fiscal responsibility to Annapolis and to hold the line against sales- and income-tax increases. Although the governor is expected to say he has accomplished his goal, critics note that the governor has consistently submitted budgets that exceed the legislature's affordability guidelines and say he has balanced the budget by one-time transfers and increases in a variety of fees.

The $25 billion 2005 budget was balanced in part with $384 million in one-time transfers from money that was supposed to go to local governments and other uses.

"At best, no matter what the [surplus] number is, it is mostly due to the legislature's management of the budget process, rather than the governor's handling of it," said Derek Walker, a spokesman for the Maryland Democratic Party.

While the state's fiscal condition may no longer be a prime campaign issue, "the biggest topic is going to be where within the state government he is choosing to spend money - what things is he leaving funded or underfunded?"

Warren G. Deschenaux, the top fiscal analyst for the General Assembly, said Maryland still faces projections of budget shortfalls in future years because of commitments to a $1.3 billion education program and the fast growth of health care spending. Only revenue growth of 7 percent to 8 percent yearly will eliminate the so-called structural deficit, he said.

"Is it impossible? No. Is it likely? I don't know," Deschenaux said.

Also yesterday, Kopp, the treasurer, said her office had completed its review of discrepancies between the state's bank accounts and accounting ledgers. She asked the comptroller to wipe $37 million off the state's books to compensate for improper ledger entries - a problem she said dated to 1995.

Kopp said there was no indication that fraud, theft or malfeasance created the $37 million discrepancy, and she said that new accounting procedures will ensure the problem is not repeated.

"It's not money that was ever there," Kopp said. "With modern technology, we can do things that were not possible 10 years ago with accounting."

Sun staff writer Jennifer Skalka contributed to this article.

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