Maryland's improved economic picture should allow increases in state worker salaries and in welfare benefits, without a tax rise, according to Gov. Harry Hughes.

Hughes told the Maryland Association of Counties that the state's surplus for the current fiscal year now is expected to be "significantly more" than had been forecast. He did not offer an estimate of the projected surplus.

He said it should cover raises for state employes and enhancement of welfare programs to bring them more in line with those in some other states.

"Barring an economic downturn of catastrophic proportions," he added, the surplus should help cushion a drop in federal funds to Maryland, a drop he said had originally been projected at $200 million to $250 million but "may actually be only $50 million."

He said Maryland counties and local governments could lose another $100 million in direct aid.

However, he said the state's fiscal future is not bleak, pointing out that unemployment dropped in June, with 2,029,000 state residents employed, an increase of 10,000 over the same month last year.

Sales tax revenues for June rose, "reflecting an increase over a wide range of categories, including consumer spending and items related to construction," henoted.

More than $2 billion worth of new or expanded industry has come into the state in the past two years, a trend Hughes said he expects will continue.

Consequently, he said, residents can be protected from "the cruelest, most painful effects of the deep slashes in federally funded programs" if state and local governments continue to cooperate with each other.