Fiscal year ends with big surplus; Unexpected windfall of $319 million draws calls for state tax cuts; 'Invest in future'; Glendening focuses on one-time expenses, such as schools


In another burst of good economic news for Maryland, officials said yesterday the state closed out the fiscal year in June with an unexpectedly high budget surplus of more than $319 million.

Coming on top of estimates in March that state revenues were $274 million higher than expected -- money that was appropriated in the state budget for the current year -- the new figures mean the state collected $593 million more than anticipated during the 12 months that ended June 30.

The figures prompted renewed discussion of tax cuts yesterday and might hamper an expected move in the next legislative session to increase the gasoline tax to pay for road and other transportation projects.

Gov. Parris N. Glendening, perhaps the chief beneficiary of the good budget news, called the surplus "incredible" and pledged to use the windfall on one-time needs such as constructing and renovating school and college buildings.

"I look forward to working with the state legislature as we use this historic budget surplus to invest in Maryland's future," Glendening said in a statement. The governor also pledged to save some of the surplus.

The surplus represents a significant portion of the state's general fund, which totals about $9 billion this year.

State Comptroller William Donald Schaefer said the surplus was fueled by healthy increases in income tax and sales tax collections. The state also earned $105 million in interest on its investments, about a third higher than was projected thanks to the strong stock market, he said.

Del. Robert H. Kittleman, the House Republican leader, repeated his party's longtime call for tax relief.

In particular, he said the state should accelerate the 10 percent income tax cut enacted in 1997, which is to be fully phased in by 2002.

"The people have overpaid and they deserve some of it back," said Kittleman of Howard County. "I wouldn't give it all back because we have major needs in transportation and schools."

Many lawmakers have expressed concern in recent years that the state needs to spend more to relieve traffic congestion and improve mass transit. But with the state enjoying such a strong revenue picture, the General Assembly will be reluctant to increase taxes to pay for such projects, some lawmakers said.

"There are pressing needs for roads, but it's going to be very difficult to get a consensus to pass a [gasoline] tax bill any time while the economy is cruising along as it is during this economic boomlet," said Senate President Thomas V. Mike Miller, a Democrat.

House Speaker Casper R. Taylor Jr. said the surplus showed that the state could afford to shift as much as $250 million in general funds to pay for transportation projects -- and avoid a gasoline tax increase.

Using general state revenues for transportation projects, which are now paid for out of a separate fund built largely on gasoline tax proceeds, would mark a major change in the state's fiscal scheme.

"We have an opportunity to do this, with the economy as strong as it is," said Taylor, a Democrat from Cumberland.

Miller said he saw little sentiment for major new tax relief, but said the state could afford "targeted" tax cuts. In particular, he said the state should move to eliminate the inheritance tax -- particularly on assets left to a spouse -- which he called unfair and "offensive."

An article about Maryland's budget surplus in yesterday's editions of The Sun said that about $30 million in unanticipated state revenue came from investments in the stock market. The state invests its nonpension assets in certificates of deposit, money market funds, repurchase agreements and federal obligations. The Sun regrets the errors.
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