Legislative analysts laid out a grim set of options yesterday for how Maryland might resolve its $1.8 billion budget shortfall, including cutting all employee pay by 1 percent, withholding aid to local governments and scaling back scholarship programs.
Other suggestions by the analysts include raising the income tax of the wealthy, increasing the state sales tax and property tax rates, and legalizing slot-machine gambling.
The options were presented yesterday to a meeting of the General Assembly's Commission on Maryland's Fiscal Structure, a panel of many of the legislature's budget leaders as well as fiscal experts from outside state government.
"The majority of things on this list most people in this room don't want to talk about," said Frederick W. Puddester, a former state budget secretary who is chairman of the task force.
But Puddester says that by the middle of next month, the 17-member commission aims to create a list of recommendations to the governor and governor-elect as to how they could tackle the current year's budget deficit as well as the shortfall projected for the fiscal year beginning July 1.
This week, legislative analysts projected that the current year's state deficit is $590 million -- almost $200 million more than what was predicted two months ago. They forecast that the shortfall for next year will be more than $1.1 billion.
Maryland's budget for the current year is more than $21 billion. But the projected shortfall deals only with the approximately $10.5 billion "general funds" portion that covers most state services and aid to local jurisdictions for such areas as public schools.
The state constitution requires Maryland to have a balanced budget, so officials will be forced to make large cuts to spending or to find new revenue sources.
The range of possible cuts proposed by legislative analysts yesterday suggests it will be difficult for the budget to be balanced without significant pain.
"This is the first time people will see exactly the difficult choices our legislative leaders will be grappling with," said commission member Peter V. Berns, executive director of the Maryland Association of Nonprofit Organizations.
Analysts said the state could save $90 million this fiscal year by holding back a portion of income tax revenue intended for local governments. Cutting the pay of all state employees by 1 percent would save $15 million and increasing their prescription drug costs would save $5 million. The analysts also proposed a series of one-time transfers from various funds, most of which would require legislation in the 2003 Assembly session.
Merely proposals
Yet their total cuts amounted to $372 million -- more than $200 million short of the current year's projected deficit. The state would be forced to take the rest from its $500 million rainy-day reserves, possibly leaving the reserves short of the amount sought by Wall Street credit rating agencies.
Members of the commission were careful not to endorse any of the suggestions yesterday and said they are prepared for a lot of criticism at a hearing set for Thursday in Annapolis.
"I represent the Maryland Association of Counties, and I'd get run over the top by some of those people if they thought I was supporting this," said Calvert County Commissioner Robert L. Swann of the suggestion to cut local aid.
The state's unions immediately began mobilizing opposition yesterday to the proposals to cut employees' pay and increase their health care costs. They said a statewide hiring freeze that has been in place for more than a year has demoralized employees.
"These kinds of cuts will accelerate the number of employees who leave state service," said Sue Esty, legislative director for the American Federation of State, County and Municipal Employees. "This will have a direct impact on the citizens of Maryland, from fewer parole and probation officers to longer lines at the Motor Vehicle Administration."
A spokeswoman for Gov. Parris N. Glendening said yesterday that the governor remains committed to making enough cuts to the current year's budget to ensure he leaves office without any deficit. "The governor is considering many options that will not be decided until he meets with the governor-elect," said spokeswoman Raquel Guillory.
Glendening and Gov.-elect Robert. L. Ehrlich Jr. had tentatively been set to meet this week, but it appears their meeting has been delayed until next week.
A spokesman for Ehrlich acknowledges the severity of Maryland's budget woes will force tough decisions. "It's all on the table," said spokesman Paul E. Schurick. "But the current governor has to make cuts very quickly, because the longer he waits, the worse the problem continues to get."
Other options
The analysts' suggestions for ways to cover the $1.1 billion shortfall projected for next year appeared to be just as painful. Those options include:
For state employees, eliminating all raises, cutting salaries by 1 percent, increasing their share of health care costs and abolishing 1,000 positions.
For higher education, giving no increase to state colleges and universities and limiting the HOPE scholarship program only to prospective teachers.
For health care, reducing services to the mentally ill and delaying plans to improve salaries for people who work with the developmentally disabled.
For local jurisdictions, holding back $100 million in aid, making local governments responsible for future increases in teacher retirement costs, and cutting by 1 percent general aid to counties, community colleges and health departments.
Tax increases suggested by analysts include raising the top income tax rate to 6 percent on Marylanders with incomes in excess of $100,000, generating $200 million in new revenue.
A 1 percentage point increase in the state sales tax rate, to 6 percent, would generate $520 million, analysts said. Increasing the state property tax rate from 8.4 cents to 14.4 cents per $100 of assessed value would provide an extra $200 million, while doubling the tax on alcoholic beverages -- which haven't been changed since 1955 for liquor and 1972 for beer and wine -- would generate $25 million.
While legalizing slot machines, which Ehrlich supports, could generate $800 million a year, analysts said those dollars would be unlikely to help much with the immediate shortfall.