Lt. Gov. Kathleen Kennedy Townsend released a detailed plan yesterday for closing a $1.7 billion state budget gap over the next 18 months, saying she would use a combination of cuts, transfers and the possibility of a tobacco tax increase to balance spending and revenues.
A key component of her proposal is the sale of a portion of Maryland's stream of tobacco settlement payments to generate cash.
The technique, known as securitization, was criticized by Republican gubernatorial nominee Robert L. Ehrlich Jr. as an irresponsible robbing of future resources, and by health advocates who feared the anti-cancer programs funded by tobacco dollars would be at risk.
But Townsend said that she, unlike Ehrlich, was offering a specific menu of options for steering the state through tough economic times. Ehrlich's proposal, released last week, would be "dead on arrival in the legislature," Townsend said.
"This is a real plan with real numbers. It balances the budget without raising taxes and without jeopardizing our bond rating," she said. "Triple A states don't consider budgets like his. He is using accounting techniques more likely to be found in Enron or WorldCom. They have no place in the Maryland state budget."
Townsend pledged yesterday to balance both the current budget and next year's - despite slumping tax revenue - while increasing spending on public education and creating a prescription drug benefit for senior citizens. Unlike Ehrlich's, her budget projections do not rely on revenue from slot machines, she said.
Her plan contains several components, including cuts to the current budget, which began July 1; cuts to the 2004 budget, the first to be prepared by the next governor; and ideas for additional revenue to close an estimated $1.3 billion gap for 2004.
In the current year, figures released this month show that tax revenues will come in $414 million lower than projected. Because state law requires a balanced budget, an equivalent amount of cuts or other money is needed.
Townsend provided a list of $282 million in cuts and new cash yesterday. The largest amount would come from selling 10 percent of the state's tobacco settlement funds and related payments for lawyers to generate $137 million.
Among her other ideas: cutting $8 million in consulting fees; deferring $50 million in unspecified purchases; taking $50 million in surplus funds from the Injured Workers Insurance Fund; and transferring $25 million in surplus funds from an auto insurance fund to the general fund.
An Ehrlich spokesman said yesterday that Townsend's figures fall short of what the state needs. "It's far-fetched and full of gimmicks and the numbers don't add up," said spokesman Paul Schurick.
But the Townsend campaign said more cuts would be identified through a "top-to-bottom" review of state spending by a blue-ribbon panel she has promised to convene.
More than a dozen other states have sold portions of their tobacco settlement funds to help plug budget holes, and Townsend campaign staffers said the time is right for Maryland to do the same, because investors are growing hungry for such a relatively safe flow of money. The state could get 72 cents on the dollar now, they said, compared with other states that got about 50 cents on the dollar months ago.
If needed, Townsend said, she would consider selling an additional 30 percent of the payment stream to fill next year's budget shortfall.
Michael Schwartzberg of the American Cancer Society said his group would fight the sale, because it would reduce money coming into the state that is spent on anti-cancer programs.
"We would not be supportive of it, and would try to reverse that course if it comes to that," Schwartzberg said.
Schurick said such a sale was irresponsible. "It's a typical Glendening-Townsend ploy, which is just mortgaging the future," he said. "Spend now, and hope to pay for it later."
For the 2004 budget, Townsend proposes reducing the growth in higher education funding by $12 million and implementing an early retirement program for state workers to save $15 million.
The state has had a hiring freeze since October, which was tightened by Glendening this week.
Sue Esty, the legislative director for the union representing the largest number of state workers, said yesterday that early retirements and hiring freezes were short-term fixes, but are more preferable to "more Draconian measures" such as layoffs or workweek extensions. "The employees who remain behind are going to be shouldering a much heavier burden," she said.
Other Townsend ideas include:
Steering $47 million from property transfer taxes used to buy open space into the general fund, while borrowing an equivalent amount so land purchases can continue. "I don't think this will be a setback for land preservation," said Susan Brown, executive director of the Maryland League of Conservation Voters. "She has made a lot of commitments to move forward on preserving land, and that is evident by her identifying another funding source."
Increasing the state tobacco tax by an additional 36 cents a pack, bringing it to $1.36 and generating $105 million a year. Townsend previously had said she would raise the tax in the second year of her administration in order to fund health programs; now, the increase might come sooner, with revenue going to other state programs.
Townsend is pledging that in the second year, the increase would be dedicated to health. "That's more kids' lives saved. That's great," said Vinnie DeMarco of Health Care for All, a group pushing for higher tobacco taxes.
Tapping the state's $500 million rainy-day fund by an unspecified amount to balance next year's budget. Ehrlich has said he would not touch reserves, but Townsend said the state could take out millions and keep its AAA bond rating.
Townsend said her ideas have been endorsed by General Assembly leaders, but are open to negotiation.
Sun staff writer Howard Libit contributed to this article.