ANNAPOLIS – Maryland faces a projected $1.7 billion budget deficit by the end of fiscal 2003, and legislators say it is not likely to disappear without tapping the state’s cash reserves and deeply cutting into state spending.
The biggest part of the budget problem is revenues, which are forecast to fall for the first time in at least 15 years, according to figures released at the General Assembly’s Spending Affordability Committee Tuesday. Such a revenue drop is a phenomenon not seen even during the budget crisis of the early 1990s.
“Unless the governor takes action in the current budget, it makes 2003 absolutely impossible. What he has done so far is inadequate,” said Sen. Barbara Hoffman, D-Baltimore, committee chairwoman.
The governor takes a different view.
“They (legislative budget analysts) are paid to produce doom and gloom scenarios. We are paid to make sure that won’t happen,” said Mike Morrill, spokesman for Gov. Parris N. Glendening.
But Hoffman and other legislators who remember the last recession are concerned.
Delegate Nancy Kopp, D-Montgomery, for example, said she favors deeper initial cuts, rather than the multiple rounds of belt-tightening that characterized that period.
There are more lessons to be drawn from the situation in the 1990s, and the similarities to the current year.
“The states were coming off a very good revenue period,” said Scott Pattison, executive director of the National Association of State Budget Officers. “Suddenly, revenue growth rates were plunging and states found themselves facing serious budget shortfalls. So far this is fitting the same pattern.”
Between mid-1990 and the end of 1992, then-Gov. William Donald Schaefer chipped away at the budget nine times. Programs were canceled and thousands of workers laid off as the state struggled to meet the constitutional demand to balance the budget.
“We had to make cut after cut after cut,” said Schaefer, now state comptroller. “If you’ve been through that you know it’s devastating . . . I just don’t want the state to face it again.”
That recession came as a surprise to Schaefer.
When a budget shortfall was initially projected in August 1990, it was only $150 million.
One month later it grew to $249 million, and Schaefer was quoted at the time saying: “We’re going to make some adjustments of $150 million to $200 million, and it’ll be some pain. But it’s a pain that can be taken care of with a Bayer aspirin rather than taken care of by 10 Tylenols.”
Three weeks later the deficit hit $322 million.
By early December, as revenues continued to fail to meet expectations, Schaefer had cut a total of $430 million, and warned that it was going to be “devastating.”
The General Assembly resisted facing the economic reality, but yielded after members saw the ugly future, Schaefer said. Legislators then cooperated in paring spending and raising taxes.
With each cut, county and local governments scrambled to readjust their own budgets.
As the recession deepened, Medicaid rolls swelled to 475,000 at the end of 1991, almost one out of every 10 Marylanders.
Looking back now, Schaefer said, the first inkling that something was deeply wrong was when sales tax revenues started to fall off.
That same indicator, measured after this year’s holiday season, will likely be a clear signal of the new recession’s magnitude, Pattison said.
“If retail is bad, it’s going to be a tough recovery,” he said. “I think it’s going to be an awful fiscal year 2002.”
Pattison’s pessimism is gathering validity with Friday’s release of federal labor statistics. The country’s unemployment rate jumped 5.4 percent in October, the largest one-month increase in more than two decades. Maryland, which is a month behind federal statistics, announced September unemployment was 4 percent, a one-tenth percent increase over August. Some Maryland legislators say they saw the bad times coming. “This budget was in trouble the day we enacted it,” said Sen. Robert Neall, D-Anne Arundel. Neall, who was Anne Arundel County executive then, recalled the budget problems of the 1990s saying: “They scared the hell out of me — look at where we are now.” “If you don’t make deep enough cuts the first time through you’re really putting yourself behind the eight ball,” said Neall. Neall is urging the state’s rainy day fund be preserved intact to maintain the state’s triple-A bond rating. Some legislators accept part of the blame for passing a budget they knew was unbalanced. “The Legislature didn’t have the guts to stand up to the governor and now we’re paying for it,” said Senate Minority Leader J. Lowell Stoltzfus, R- Somerset. All capital projects for this year and next will have to be deferred, the state’s rainy day fund will be drawn upon and, “I think we’re going to have to see some layoffs,” predicted Stoltzfus. The state’s payroll swelled over the past two years, as 5,300 state jobs, both contractual and permanent, were created, said John Rohrer, fiscal and policy analysis coordinator for the Legislature’s Department of Legislative Services. Those new positions cost the state about $180 million per year. Glendening announced cost-containment measures Oct. 17, totaling $205 million over the next two years. All hiring, outside of security-related positions, was frozen. Agency budgets were cut by 1.5 percent, and $65 million in approved capital projects were deferred. No additional fiscal measures will be taken until the December revenue estimates come out. “The governor will base cuts on information, not speculation in December,” Morrill said.
“I would suggest,” said Hoffman, “that December may be too late.”