- The Washington Times - Thursday, September 19, 2002

Maryland's anticipated budget deficit arrived a year early yesterday, when revised tax-revenue estimates showed a $309 million shortfall this fiscal year.

The estimates have forced Gov. Parris N. Glendening to consider emergency budget cuts in the waning days of his administration.

The Bureau of Revenue Estimates projected a $309.7 million budget deficit for this fiscal year, which began July 1. The shortfall boosted the projected deficit for next year to $1.6 billion, according to an internal memo released yesterday.

During the next few days, the governor will meet with budget officials to identify potential cuts to the current $22 billion budget.

"They are going to be taking a very close look at where adjustments can be made," said Glendening spokeswoman Raquel Guillory, adding that it would be premature to speculate where the governor might make cuts.

Rep. Robert L. Ehrlich Jr., the Republican nominee for governor, seized on the new estimates at a campaign appearance yesterday. He had been using the deficit previously projected for next year to accuse his Democratic opponent, Lt. Gov. Kathleen Kennedy Townsend, of presiding over a mismanaged budget.

"They did overspend and overpromise. Of course they did," Mr. Ehrlich said in a speech to the Rotary Club of Towsontown, a predominantly pro-Ehrlich crowd in his Baltimore County congressional district. "I'm spending a lot of time trying to figure out how to get to even without hurting poor people."

Requests for comment from Mrs. Townsend were referred to a campaign spokesman, who was unavailable.

Despite the bad budget news, Miss Guillory said Maryland's finances are fundamentally strong and in better shape than those of most other states. Maryland still maintains the highest bond rating and boasts a $500 million rainy-day fund, she said.

Mr. Glendening is not expected to raid the rainy-day fund because it is currently at the minimal level required to maintain the state's high bond rating.

"You have to look at the big picture," Miss Guillory said. "We are feeling the effects of what has been going on for the last year, similar to what many other states are going through."

In Virginia, for instance, Gov. Mark R. Warner is dealing with a $5 billion revenue shortfall and looking to cut agency funding up to 15 percent in addition to previous cuts that were as high as 8 percent.

Maryland and Virginia were both awash in tax revenue and spending freely when the nation's economy was booming. The economic slowdown is now forcing states to rein in spending, and the economy is expected to remain flat or possibly worsen through next year.

The Bureau of Revenue Estimates memo said the economic outlook had changed since the official revenue projection in December and since the revised income-tax estimate in March. About $241 million, or 80 percent, of new shortfall estimate came from lower-than-expected income-tax revenue, largely due to diminished capital gains.

"As you know, the economic news over the summer has been good one day and bad the next, reflecting a stagnant or marginally contracting state economy," bureau Director David F. Roose told the comptroller, treasurer and budget secretary in the memo.

"Growth does not look set to resume until after the new year, if then," he wrote.

Mr. Roose predicted revenue growth of just 1.6 percent over last year.

He cited downturns in the stock market as part of the cause of the growing revenue shortfall. This year, the Standard & Poors' 500 stock index has fallen almost 24 percent and the NASDAQ has fallen more than 35 percent.

"If the markets end the year around these levels, this will easily have been the worst bear market in at least 30 years, with three years of double-digit declines," he wrote.

Mr. Roose predicted improved revenue sometime next year.

"As the economy recovers from the uncertainties of the current period and begins expanding again sometime in [fiscal] 2004, and as the income tax reduction no longer restrains growth, the income tax will accelerate to 5.7 percent growth in fiscal year 2004," he wrote.

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