- The Washington Times - Sunday, November 24, 2002

The balanced budget plan offered by Gov. Parris N. Glendening last week falls about $90 million short of erasing Maryland's $590 million budget deficit for this fiscal year.
In addition, the plan's call for taking $189 million from the state's $500 million revenue-stabilization fund, known as the "rainy-day fund," can't be implemented before the General Assembly convenes in January.
Mr. Glendening's plan, which would avoid laying off state workers, was based on deficit estimates of $498 million for the current fiscal year. Recently revised estimates place it at $590 million.
The shifting deficit figures and political concerns in fiscal management provide a glimpse of the job awaiting Gov.-elect Robert L. Ehrlich Jr. and state lawmakers seeking to close an expected $1.3 billion deficit in the state's $21 billion budget next fiscal year.
"The cost of state government has got to shrink," said Ehrlich spokesman Paul Schurick.
Basic budget-balancing strategy focuses on two means: raising taxes and cutting services. In his campaign, Mr. Ehrlich vowed not to raise personal income or sales taxes but said he would consider raising taxes on gasoline.
"We already have a highly taxed state," he said recently. "The economy is not good. The last thing we want to do is look at raising [income and sales] taxes."
Mr. Ehrlich has also said he will not lay off state workers or reduce the amount of state aid to local school boards and local governments.
"The task is going to be difficult, regardless of where the cuts are going to be made," said Shareese DeLeaver, spokeswoman for the Ehrlich transition team.
Mr. Ehrlich's first budget is due Jan. 17 and will have to make up the $1.3 billion shortfall anticipated in fiscal 2004, which begins July 1.
He has retreated slightly from his plan to legalize slot machines at horse-racing tracks by March 2004 and use the new revenue in the upcoming budget year. He still backs legalized slots but says the revenue as much as $800 million annually probably will not arrive in time to help his first budget.
Most of the spending cuts Mr. Ehrlich is likely to recommend would occur in the state's $11.2 billion general fund, or operating budget.
The rest of the budget consists of about $4 billion in federal funds, about $3.2 billion in the Transportation Trust Fund for highway projects and mass transit, about $2 billion in higher education funds and about $1.5 billion in other dedicated accounts.
Personal income tax provides about $5 billion, nearly half of the state's general-fund revenue. The recent recession precipitated an estimated $300 million drop in personal income-tax revenue this year and accounts for most of the budget deficit.
Sales-tax revenue is the second-largest portion of the general fund, providing $2.7 billion, or more than a quarter of the state's operating funds. By comparison, the next three largest revenue sources generate about 12 percent of the general fund: $668 million in business tax, $430 million in lottery proceeds and $213 million in tobacco tax.
A $42 million dip in sales-tax revenue also contributed to the shortfall.
The remainder of the shortfall occurred in cost overruns in various departments. Mental health services accounted for about a third of the extra spending, going about $36 million over budget.
Aid to local governments for elementary and secondary public education consumes the single biggest portion of the budget: $3.04 billion. Medicaid follows, with $1.6 billion in state spending.
The agencies that receive the next-highest levels of state funding are health, higher education and public safety, each getting about $1 billion, or 10 percent of general-fund expenditures.
A recent budget analysis prepared for an ad hoc fiscal-management commission proposes increasing the top personal income-tax rate from 4.75 percent to 6 percent. It also suggests repealing personal income-tax deductions for home-mortgage interest, charitable contributions, real property taxes, Social Security benefits and pension income.
The Department of Legislative Services wrote the report for the Commission on Maryland's Fiscal Structure, an ad hoc General Assembly panel of 17 mostly Democratic state lawmakers and independent budget experts.
Other options include increasing the state sales-tax rate from 5 percent to 6 percent, the corporate income-tax rate to 8 percent, the gas tax by 7 cents, the cigarette tax by 25 cents, the state property tax rate by 6 cents, and adding taxes on services such as business, transportation, professional and financial.
These were among more than 50 options to increase revenue identified in the commission's Nov. 15 report. All the options combined would create about $5.2 billion in revenue. The report also offers more than 30 options for budget cuts totaling $732 million.
The report's authors stressed that the options are not recommendations.
The state's payroll, not including higher education, accounts for $2 billion, or 18 percent of general-fund spending. The state workforce was not spared as an option for cuts in the report.
The report proposes canceling raises, bonuses and out-of-state travel, cutting salaries by 1 percent, raising the employees' share of health insurance costs from 15 percent to 20 percent and abolishing 1,000 positions. These measures would result in more than $120 million in savings.
State aid to school boards, libraries and local government costs about $3.8 billion, a third of general-fund expenditures. The report suggests reducing unallocated local aid, which is administered through local income tax, by $100 million.
Other potential cuts to local aid include freezing payments to counties, community colleges and health departments, or reducing those payments by 1 percent about $4.7 million. The state could freeze its contribution to teacher retirements, passing the additional cost on to local governments, and end a program to boost teachers' salaries for a combined savings of $65 million.
Medical assistance and entitlements account for about $2 billion, or 20 percent of general-fund expenditures. Cost-cutting options in this area include:
Eliminating fee-for-service coverage of mentally ill patients who are not eligible for Medicaid and create a safety-net system by awarding grants to health care providers. This would save $20 million.
Delaying the second year of a program that pays businesses to hire developmentally disabled workers, saving $16 million.
Developing a preferred-drug list for Medicaid prescription drugs and seeking rebates from pharmaceutical companies to put their drugs on the list. This would save $8 million.
Reducing Medicaid payments for managed care and delaying a scheduled increase in payments for one year. This would save $6 million.
Higher eductation, which accounts for about $1 billion of general-fund spending, was offered for cuts totaling $153 million. Among the options: leveling funding to state colleges and universities to save $38 million, deferring information-technology projects to save $20 million and liquidating the Maryland Housing Fund to save $20 million.
The $1.3 billion deficit will be the second Mr. Glendening will have left for a successor to deal with. When he left the Prince George's County executive's office to become governor in January 1995, he left a $108 million deficit for incoming Executive Wayne K. Curry to handle.

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