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Maryland begins grim search for excess spending Leaders shun rise in taxes but feel little fat is left

THE BALTIMORE SUN

ANNAPOLIS -- Determined to prove it is doing everything to balance its budget short of raising taxes, the Schaefer administration has embarked on a grim search-and-destroy mission with government fat as the enemy.

The exercise proceeds with the conviction that most of the fat is gone. Revenues are down and demand for government services is up. Yet, more than $700 million was cut from the budget in the fiscal year that ended June 30.

But the search for unnecessary spending goes on.

"We are working on the assumption that he [Gov. William Donald Schaefer] is going to balance the budget without [new taxes], because there aren't any," said Frederick W. Puddester, a deputy budget secretary.

After a decade of robust revenue growth and expanding government services, Maryland finds itself in the company of states whose gaping deficits seem to leave them no alternative but to reach for the taxpayers' wallets.

Seeing a need to explain this turnaround, state officials at every level are saying Marylanders don't fully understand why the deficit is so deep or just how important government services are -- if not to them individually, then to society as a whole. The same officials are painfully aware that many taxpayers don't buy the argument.

Mr. Schaefer tells of a letter he received recently from a Marylander who wrote that he was simply tired of paying for the care of society's casualties.

The man said he was suffering "compassion burnout," the governor lamented.

So, from a limited selection of spending programs -- many are shielded from the knife by federal or state law -- the trimmers must find at least $300 million that can be removed from the current budget and $700 million from the one being prepared for next year.

The national recession, a pullback of federal aid during the Reagan years, mandated health programs and other forces beyond the state's control are cited by state and county officials alike.

But their critics say imprudent spending practices adopted in the 1980s are equally responsible.

The debate over causes has less immediacy, however, than the approach to a cure.

"There's no question in my mind that entire programs will have to be terminated," Budget Secretary Charles L. Benton Jr. said at a recent Board of Public Works meeting.

Stopping short of layoffs for the moment, the state has recently taken these actions, among others:

* Every department has been ordered to devise a plan for cutting 4.25 percent from what it had been authorized to spend this year. The hope is to find at least $100 million during this process. Other targets will include aid to community colleges, a $25 million budget item, and the organizations that receive millions of dollars in specific state grants.

* About $97 million in flexible block grants to local governments could be reduced, and the major aid programs for public schools might also be in jeopardy. Only 25 percent of the local aid can be cut by the governor on his own. The remainder of that fund, plus the education aid, could be reduced only by the General Assembly, which could meet in special session to consider such an action this fall.

* Legislators are actively considering a proposal under which state education aid would be reduced while allowing counties to restore the cuts by imposing local taxes.

Since the wealthier subdivisions would profit most from a higher local tax on wealth, state Sen. Laurence Levitan, D-Montgomery, says he would promote long-term assistance for the poorer jurisdictions from what he called the common pot. Mr. Levitan says he already has had discussions on that subject with Baltimore Mayor Kurt L. Schmoke.

* Rather than approve a holdover contract for the state's vehicle emissions program, the state ordered preparation of a request for proposals in the hope that some enterprising vendor, hungry for business now, will have an idea for saving money.

* Recognizing that health care for the poor is its fastest-growing program, the state is hoping to reduce the number of low-birth-weight babies by requiring pregnant women to obtain prenatal care to remain eligible for benefits.

The average cost of treating premature infants in hospitals is $25,000, according to Nelson J. Sabatini, the secretary of health. A million dollars invested in prenatal nutrition programs saves many millions later because normal-weight babies do not require costly medical intervention.

Delegate Ellen R. Sauerbrey of Baltimore County, the Republican minority leader, agrees that major cuts have already been made in state spending. The issue now, she says, is the need to make government smaller, to redefine and restrict its role.

Leaving aside more radical redefining, critics of state spending patterns argue that prudent management would have saved states such as Maryland from the large deficits they now face.

Marcia Howard of the National Association of State Budget Officers says about 50 percent of the problems are related to the recession but that 30 percent can be traced to imprudent spending decisions.

"Rather than using the strong revenue growth of the mid-1980s to establish strong budget-stabilization funds [reserves], many states instead implemented new spending programs," she said.

Pressed by bond-rating houses to prove it was worthy of the highest credit rating, the state set up the sort of rainy day fund Ms. Howard is advocating. The Maryland fund grew to $135 million but was wiped as the state cleaned out every available source of funds to balance last year's budget.

States may hope for increased revenues to help with their problems, Ms. Howard said, but they also must change their spending habits.

Maryland gets some credit, she said, for its unique spending affordability process. She was referring to the legislature's decision to keep spending at or below the increase in state revenue as measured by increases in personal income. The theory is that spending may prudently increase along with or somewhat behind income.

However frugal Maryland may have been in comparison with other states, it should have been even more careful and disciplined, says Stephen Moore, an analyst with the Cato Institute, a Washington-based think tank.

States need to look harder for "unnecessary" services and employees to cut, Mr. Moore said, citing non-teaching education personnel as one example.

"This has been a popular approach even in liberal Massachusetts," he noted. "People are saying, 'Enough is enough.'

"States that resist the urge to solve their problems by raising taxes will come out of the recession stronger than before. The problem is that the state tax increases seem to be creating a vicious cycle. Increases in taxation lead to spending increases, which lead to higher deficits," he said.

Mr. Moore warned against temporary tax increases and surcharges, which he said tend to become permanent.

Nevertheless, those who must actually take the action face difficult prospects. Here are two:

* If the state lays off as many as 4,500 government workers, it will save $100 million this year. But the salary savings do not begin until workers go off the payroll. Mr. Levitan says the layoffs

would have to occur by Oct. 1 to save $100 million -- meaning the state would save the combined salaries of 4,500 workers for the remaining seven months of this fiscal year.

* At a recent Board of Public Works meeting, Mr. Schaefer questioned Charlotte F. King, executive director of the state Social Services Administration, about the adequacy of a $968,000 contract to provide court-ordered medical examinations for foster children.

Under the stress of hard economic times, more families break up and more children end up in the care of the state. As a result, the projected budget for examinations is probably too low.

"You're mandated to do this, aren't you?" the governor asked.

"We have no choice," Mrs. King said.

"What are you going to do when you don't have any more money?" the governor asked.

"I don't think our commitment to children will be any less," Mrs. King said.

"I agree 100 percent," the governor said. "It will be interesting to see how it's accomplished."

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