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Counties fret about plan to reduce taxes Officials skeptical of Glendening pledge not to trim state aid; 'Call it healthy paranoia'; Governor says fears unfounded, predicts economic growth


Despite assurances to the contrary by Gov. Parris N. Glendening, some local officials are concerned that the governor's proposed 10 percent income tax cut will mean reduced state aid to the counties.

Those officials say they are worried about the lack of detail on Glendening's plan and fear that the details could cost them money -- in the way that the recession of the early 1990s forced the state to slash millions in local aid to solve its budget crises.

"County officials want to be secure that the state, in implementing its tax cut, is not just building up a future debt that the counties will be called on to pay," said David S. Bliden, executive director of the Maryland Association of Counties (MACo).

"We were called upon in the past to buck up at the trough," Bliden said. "We've already given at the office. We've already provided for the state's well-being."

When reminded of Glendening's pledge not to cut state aid to local jurisdictions -- 94 percent of which is education money -- Bliden said, "Just call it healthy paranoia. We're realistically paranoid about everything."

But Glendening and his staff dismiss the concerns, saying the local governments have nothing to worry about.

"This really is an amorphous sort of concern that, given the events with respect to the state budget during the Glendening administration, is not warranted," said Frederick W. Puddester, the state budget secretary. "I just don't get it."

In fact, Puddester said, Maryland's 23 counties and Baltimore City ultimately will be the winners from the tax cut because of the job growth it will spur.

"They're not getting their budgets cut or their revenue streams cut -- and they're getting the benefit of the economic growth, in [the] form of increased income taxes and property taxes," he said.

Glendening maintains that the state can absorb a major cut in the income tax over three years -- a high priority for the state's business community -- without affecting aid to local governments.

At the same time, he says, the state can avoid layoffs, pay for $254 million in additional aid over five years to Baltimore's schools and find money for costly initiatives such as new scholarships for middle-class Marylanders.

It is an argument that Baltimore Mayor Kurt L. Schmoke says he believes.

"Although all the details have not been resolved, I am confident that the governor will find a way of implementing the income tax cut without adversely affecting aid to local governments," Schmoke said Wednesday after having breakfast with Glendening.

A matter of details

But others are more cautious, echoing the sentiments of legislative leaders who were generally supportive of the tax-cut concept, but wary of the plan to pay for it, after Glendening made his announcement Nov. 19.

"We're concerned about where the money's coming from for this in the out years," said Baltimore County Executive C. A. Dutch Ruppersberger, who also is president of MACo this year. "The devil's in the details, and we haven't seen the details yet."

Glendening has until Jan. 15 to submit his detailed budget to the General Assembly, though in making the announcement he offered some inkling of how he planned to pay for the cut.

Additional worries

He eased some initial concerns of local leaders by pledging as part of his tax-cut package to protect their share of the income tax, the so-called "piggyback tax," which is calculated as a percentage of the tax owed the state.

By "de-coupling" the local income tax from the state's portion, the local tax revenue would stay constant.

But other concerns exist about Glendening's unrefined plan.

"When you look at the tax cut, I'm not sure it all adds up," said Montgomery County Executive Douglas M. Duncan. "We're all sort of waiting eagerly to see how that happens."

Glendening's plan relies heavily on a declining revenue source -- the state's excise tax on cigarettes, which would double under the plan from 36 cents a pack to 72 cents. It also makes optimistic assumptions about the future of Maryland's economy and puts off some potentially tough budget decisions until after the 1998 election.

The biggest concern for local officials and legislators alike is that Glendening's budget-balancing plan, as outlined so far, stops after three years, before the full effect of the phased-in tax cut would be seen in the state's annual budget.

In the third year, the tax cut would mean a loss of about $310 million in state revenue.

By the fourth year, the tax cut translates into a loss of $450 million, and the governor's plan accounts for only a fraction of that money, according to the legislature's Department of Fiscal Services.

Unspecified cuts

In all, Glendening's tax cut plan would require the state to make some $700 million in unspecified budget cuts over the next four years, according to the legislature's fiscal analysis.

"I think the biggest concern is that in no time we'll be visiting the early 90s -- 'it's ba-ack' -- in local cuts," said Harford County Executive Eileen M. Rehrmann.

"There's concern that it's a house of cards that's going to come falling down," Rehrmann said. "When the state has fiscal problems, we're usually part of the solution, even though we're not part of the problem."

Coloring the discussion is the hangover from the recession of the early 1990s, when state spending was up, and its revenues took a nose-dive, forcing extraordinary measures.

In a 2 1/2 -year period during Gov. William Donald Schaefer's second term, the state took the ax nine times to its budget, chopping almost $2 billion in programs, eliminating hundreds of jobs and reducing health and welfare programs for the poor.

In addition to outright reductions in local aid programs, the state shifted $147 million more in expenses to local governments by ending a program that since 1958 had paid the employers' share of Social Security taxes for public school, library and community college employees in the 24 local jurisdictions.

'Unanswered questions'

Murray D. Levy, president of the Charles County commissioners and a former county finance director, said that the memory of that and the scant details of the Glendening plan are at the heart of the concern at this point.

"Since it's not defined, the whole budget's in play," Levy said. "There are a whole lot of unanswered questions.

"It's analogous to a company that has 500 employees, and you say you're laying off five people, but you don't say who the five people are," he said. "All 500 people are going to be upset because 1 percent is being laid off.

"In this case, 1 percent of the budget's at risk, but no one knows what 1 percent; so everyone's upset," Levy said.

And the problem is not as simple as a direct cut in state aid, he said.

"Even if there is not a clear-cut reduction in aid, and even with de-coupling, if they cut state programs, there's going to be an impact here," he said. "We will hear about it. We will feel it.

"There's a lot of worry about how this is going to shake out -- more than is probably legitimate," he said.

Pub Date: 12/01/96

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