Governor seeks tax-cut delay


Acknowledging that the national economic downturn has seeped into Maryland, Gov. Parris N. Glendening asked lawmakers yesterday to delay the final installment of a state income tax cut and spend a whopping $800 million in reserves to balance next year's budget.

Glendening released the eighth and final spending plan of his administration, a $22.2 billion proposal that would exceed this year's spending by 2.7 percent.

Some areas would get more money. Public schools would receive an additional $161 million, a 6.5 percent increase. Medicaid would get an extra $367 million to cover a deficit this year and pay for next year's benefits. Environmental programs, higher education and drug treatment would also get more.

But most state agencies would be asked to continue their jobs with only small increases for inflation.

While praising parts of the plan for the fiscal year that will begin July 1 and agreeing with the governor's general priorities, General Assembly leaders said they will look carefully for cuts that would allow the tax break to take effect as planned.

Many legislators also want to find the large amounts of money needed to begin fulfilling recommendations from a blue-ribbon school financing panel known as the Thornton Commission, money Glendening did not include in his proposal.

Glendening said Maryland is in better financial shape than most states are and that he wants to use several one-time cash infusions to maintain past commitments in education and the environment.

He proposes spending $800 million of $1.3 billion in reserves, which he said would preserve enough to maintain Maryland's coveted AAA bond rating. To build the reserve fund before tapping it, the governor wants to borrow $210 million to pay for construction projects approved in previous years, freeing the cash.

The tax-cut delay would provide an additional $175 million in one-time funds.

'Not a crisis budget'

"It is a tight budget, but it is not a crisis budget," Glendening said, adding that the time is right to draw on a "rainy day" fund built when the economy was rosier.

"There is not torrential downfall, but it is raining," the governor said. "We will draw on our reserves to get us through the downturn."

The Glendening budget proposal:

Does not include the extra money for schools that was recommended by the Thornton Commission, which recently concluded a study of Maryland's educational needs. The panel called for an additional $1.1 billion yearly for schools, and some lawmakers want to begin spending toward that goal next year.

Holds the state contribution to the employee pension system at $531 million, the same as this year, rather than raising it by $65 million to meet a legislative requirement to move toward full actuarial funding. Some lawmakers are criticizing the decision, but the governor said the state has 18 years to meet the full-funding goal, and is nearly there.

Maintains a hiring freeze that has been in effect since October. Glendening's spending plan includes $25 million for salary increases for state employees, the equivalent of a 2 percent raise that would take effect Jan. 1. The governor's plan would not require layoffs. The plan does not include money for proposed pay raises for legislators, judges and the next governor.

Includes higher spending in some areas. Though the overall budget increase is modest, the general fund operating budget - which is driven by state tax revenues and includes most state services - would grow 6.6 percent, from $10.1 billion to $10.7 billion. Lawmakers are likely to look to the operating budget as they search for cuts.

Some leading Republicans accused Glendening of relying on stopgap measures and continuing a pattern of overspending and delaying difficult decisions for another year, when a new governor takes office.

"We have had unprecedented, out-of-control state spending, and now it's time to pay the piper," said Sen. J. Lowell Stoltzfus, an Eastern Shore Republican who is the Senate minority leader. "We're going to have bad times in our future, but they want to spend all of the rainy day reserves now."

Del. Robert L. Flanagan, a Howard County Republican, said the governor "is just passing on problems to the next generation."

Lt. Gov. Kathleen Kennedy Townsend, a leading candidate in this year's governor's race, called the spending plan prudent. Glendening's successor, she said, would not be burdened by this year's decisions.

"Our hope is that the economy will rebound," Townsend said. "There are indications that it will."

By proposing to postpone the 2 percent income tax cut - about $75 for an average Maryland family of four with an annual income of $53,000 - Glendening creates a political headache for lawmakers loath to renege on the commitment during an election year.

The budget proposal now moves to the General Assembly, which is permitted by law to cut the plan but not to add to it. If lawmakers want to restore the tax cut, they will have to trim the proposal.

"What he's doing is daring us by saying, 'I don't think you can come up with that $175 million to fund an income tax cut,'" said Senate President Thomas V. Mike Miller, a Prince George's County Democrat. He predicted that "there's going to be a lot of restructuring" of the governor's plan.

'Very responsible'

Sen. Barbara A. Hoffman, a Baltimore Democrat who is chairman of the Budget and Taxation Committee, called Glendening's plan "very responsible."

"The governor has a right to want to see that his last budget continues the programs that have been the hallmark of a successful Glendening-Townsend administration," she said. "We will try our best to ensure money goes to them."

Hoffman will look for trims to fund the income tax cut. "I'd just as soon go forward with the tax cut this year rather than wait another year," she said. "Politically, it's a good thing to do this year."

Sen. Robert R. Neall, an Anne Arundel County Democrat who is one of the legislature's leading fiscal watchdogs, said he was concerned that pension funding would not be increased.

"There's an arithmetic calculation, and that's the prescribed amount you should put in," he said. "If you depart from that, you'd better have a very good reason."

For the first time in his tenure, Glendening has submitted a budget that meets a growth guideline known as spending affordability, a benchmark to ensure that expenditures do not exceed taxpayers' ability to pay. However, a spending affordability committee decided that a portion of the Medicaid increase and additional borrowing for construction wouldn't count toward the limit.

More for Juvenile Justice

The governor has recommended an additional 8.7 percent for the Juvenile Justice Department, which has suffered black eyes in recent years.

Glendening's proposed increases for public education and environmental programs adhere to longtime philosophical positions. But this year, he said, mental health, drug abuse and programs such as Medicaid have risen on the list because of the slumping economy.

"When the private sector is contracting, people turn to the government for help," he said. "We are the last resort. We are the safety net."

Budget highlights

Gov. Parris N. Glendening is proposing a $22.2 billion budget for the fiscal year that begins July 1, an increase of 2.7 percent from this year. The plan goes to the General Assembly, which may cut the budget but not add to it. Here are some key provisions:

Taxes: Glendening wants to postpone the final installment of the phased-in, 10 percent income tax cut approved in 1997. Delaying the 2 percent cut that is scheduled to take effect this year would free about $175 million for state programs.

Public schools: The governor proposes a $161 million - or 6.5 percent - increase for K-12 education, including $10.5 million to reduce class sizes and hire more teachers. The budget does not include any money toward the five-year, $1.1 billion Thornton Commission spending plan, but it does contain $5 million for textbooks at non-public schools.

Higher education: Colleges and universities would see a 5.3 percent increase. The additional $68 million includes $39.8 million for the University System of Maryland and $8.6 million for community colleges. About $100 million in campus construction projects that were postponed to save money would begin July 1.

Health: Glendening's budget includes $140 million to cover this year's Medicaid deficit and a $227 million increase for Medicaid next year, including $50 million for physician rate increases. The proposal would add $25 million for services to the mentally ill and $9 million in drug treatment money for Baltimore.

Environment: Though Glendening does not propose any ambitious new programs as in past years, the budget finishes funding of the Chesapeake Bay 2000 Agreement and continues such land conservation efforts as the Rural Legacy and Green Print programs. The budget also includes money for improving Baltimore's light rail system and extending the Washington Metro to Largo.

Public safety: The budget includes $25 million for increased security in response to the terrorist attacks of Sept. 11, including $6 million for enhanced surveillance, luggage inspection and other measures at Baltimore-Washington International Airport. About $4.6 million is sought to add 243 correctional officers at prisons.

State workers: Union negotiations are continuing, but Glendening's proposal includes $25 million for higher salaries, the equivalent of 2 percent cost-of-living raises effective next Jan. 1. The budget does not include money for proposed pay raises for legislators, judges and the next governor.

Budget glance

Here are highlights of the governor's proposed budget:

Spends $22.2 billion overall, up 2.7 percent.

Delays 2 percent income tax cut for at least a year.

Uses $800 million of state's $1.3 billion reserves.

Has some extra money for schools, but none for Thornton Commission proposals.

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