What follows is an edited transcript of the two-hour meeting. The Budget

Q: Because of actions of the federal government, the state's budget is going to be the big issue in the legislature next year. Where do you see possible cuts?

HUGHES: First, it's hard to anticipate what the federal cuts are going to be. Congress hasn't even enacted their budget for last year. So it's really hard to say where we would have to make cuts.

I asked all the cabinet members to reduce their ongoing budgets by a certain amount so that we might have some funds available to fill in some of the gaps when the cuts came along. And that did work out.

But what's coming in the future is still unknown. But we know that there are going to continue to be these cuts in domestic programs and we're having to do more of it with less. And that isn't all bad. It's going to continue to be harder the more cuts that come down the pike. So far we haven't had to wipe out any program because of it. That may or not be the case in the future.

I think where and the amount of the cuts -- the federal cuts -- is going to depend a lot on the election held on Nov. 2, because there could be some changes in the Congress of the United States.

Q: What would your priorities be, though, assuming that you're going to have to face some more cutbacks. What are the untouchables?

HUGHES: I think some of the untouchable areas are the education programs for the handicapped, the less fortunate, special ed and vocational rehabilitation programs. I really think the programs for the day-care centers, abused spouses, alcoholism, drug addiction . . . these kinds of programs are untouchable.

Q: (To Pascal) How do you think the Hughes administration has handled the federal budget cuts? What do you think about his priorities and how are they different from your own?

PASCAL: I think we've begun to throw paper at problems rather than addressing them in a comprehensive manner -- at least from the start of his term.

Q: What do you mean, "throw paper?"

PASCAL: Press releases: We're going to do this; we're going to form a committee. The displaced worker is one, the juvenile area is another.

As far as the social programs are concerned, when you have a $6 billion budget, I think you've got a considerable amount of waste in that government and that's got to be looked at in a very comprehensive, businesslike manner before anyone starts talking about . . . increased revenue from any other place.

And I think we've proven that now in the county, that we can provide social services at a very substantial decrease to the taxpayer. We have the lowest property tax of any metropolitan county.

The two biggest costs in government are personnel and debt service. And as people leave employment, if you can really curtail the amount of people you rehire to fill that position over a period of years, you will do two things: You will pay the people you keep a living wage and also reduce the burden to the taxpayer.

Q: So you would use a position freeze and curtail the number of jobs being filled at the state level through the governor.

PASCAL: That would certainly be one area which you'd have to look at very closely because that's your biggest cost.

HUGHES: I would like to respond to a couple of things here with facts rather than political rhetoric.

We've had a freeze on positions for some time in the state. New positions are authorized only for programs mandated by the legislature to man new facilities, emergency situations. We abolished over 900 authorized positions last year in the state.

Q. Can you foresee any circumstances under which you would seek a tax increase?

PASCAL: I don't see any increases certainly next year. We rank, I think, 11th highest in the Union as far as taxes are concerned in this state.

So we do ask an awful lot from our taxpayers at different levels of government.

Q: Next year: Are there other taxes you'd get rid of? And, would you say that you were willing not to raise them for two years?

PASCAL: I would certainly think that would be possible. But being realistic, you'd have to get there first and look at the situation.

But . . . as far as Reaganomics is concerned . . . everybody ought to understand something: We have the capacity at the local and state level to restore every cut in the social projects that was made by the federal government. Every one. We've got the financial capability for going out and raising money. Every one.

Q: How do you do that?

PASCAL: You do that if you want to tax people. I suggest to you that there's a better way and that's looking and seeing how effective your government is running.

But we should not be throwing up our hands as if it's going to be the end of the world. Because I think that with good management it doesn't have to be the end of the world at all, as a matter of fact. We've got the capacity to do the job. We truly do.

Q: That sounds like we can put you down as a solid supporter of Reaganomics.

PASCAL: No, no, no, no, no, no, no, no, no. The point I want to make to you is this, that we have the capacity to raise money at the state and local levels. The question is, what is the priority of our citizens?

Q: I don't see where you disagree with Reaganomics, then.

PASCAL: No, no.

Q: So where do you disagree with Reaganomics?

PASCAL: Well, I disagree in how much money we're going to get back from our federal income taxes.

Q: What you're saying is that you would substitute higher state and local taxes?.

PASCAL: No, no, no. What I'm saying -- be sure we understand each other -- is that we are going to have to set the priorities at the local level on what we're going to spend our money on .

Q: Basically you're saying you like the theory of Reaganomics of transferring the decision-making back to the state.

PASCAL: Only if the revenues are correspondent.

HUGHES: I think the problem here as far as Reaganomics is concerned . . . is that it's an attempt to shift the burden from federal to the state and local levels to combat the federal deficits.

The concept of sorting out what programs are of national interest and should be national programs and what programs are of state and local interest and can be better administered there -- there's nothing wrong with that concept, as long as there are no winners and losers. And I'm quoting the president.

But that concept hasn't gotten very far. There are programs, such as income maintenance programs that are of a national interest and therefore should be national programs, because you shouldn't have the disparity on basic things like shelter, food between the states.

There are other programs that the states can manage better and local governments can manage better. Law enforcement, transportation, highways -- we do everything in highways now. We get federal money for them, but we design them, we build them, we own them, we maintain them.

And I can tell you without any equivocation that we can deliver the services cheaper at the state and local level than we can at the federal government. So the question then and this is one point we agree on--it's a question of funding.

HUGHES: And sorting out. . . . When 12 percent of the federal budget suffers 26 percent of the cuts, the domestic programs, that's not really consistent with the concept of federalism and no winners and losers.

Q: Do you subscribe to the theory that the concept was just used to disguise the cuts?

HUGHES: Yeah. What's really happening in New Federalism as far as I can see is less federal money; cuts in domestic cuts; too much too quickly. Prisons

Q: Beyond construction already approved, do you see any need for additional prisons?

PASCAL: Everybody knows we need another institution.

Hughes' secretary of corrections has indicated that on the public record and still we vacillate. And what has happened is that Mr. Hughes has either paroled or early released or commuted more people than any other governor. . . . And I've got those statistics that bear that out.

Q: Is that true?

HUGHES: Not from the statistics I have.

Q: Where are those statistics coming from?

PASCAL: They're coming from the department of corrections.

HUGHES: The same place mine are coming from.

PASCAL: . . . Certainly we have to build another institution . . . by virtue of the overcrowding since we've stopped early release and that type of nonsense because of public pressure, we've started on the probation end.

We've gone to the second-highest state in the nation in probation because the judiciary knows there's no place to put them.

The crime rate is down . . . from the highest rate that this state has ever had. I don't think that's a record -- by letting it go up, up, up, and then saying it's down, and the reason it's down is that we're keeping more people there who belong incarcerated, instead of letting them out prematurely.

Q: So you're saying the governor's responsible for the higher crime rate.

PASCAL: There's no question about it.

HUGHES: We've got construction under way at the three complexes, the largest prison construction program in the history of the state. We've put temporaries at Jessup. We just finished and are moving into the pre-engineered or temporary buildings for Hagerstown inmates, and whether or not there is to be another prison built is something we are looking at now.

PASCAL: What's your guess?

HUGHES: I'm not going to pre-judge what it would be. I think you have to look ahead at what you're doing, at the projections of what the inmate population might be in the future. The national projections are that they should go down. These are expensive facilities that you're building and the projections I've seen are that in the late '80s, because of the change in demographics, the population age from 18 to 24 when you have your highest rate of incarceration will be moving through and incarceration should taper off. I hope that's true.

PASCAL: Let me be sure we have a very clear distinction between Mr. Hughes and myself on this issue. Now we have a bed capacity of about 8,500, I believe. Our population is about 11,000. Fifteen-hundred beds are not even going to reach the adequate population that was in as far as living space is concerned to what we have in prison. Everybody knows we need another institution.

Q: Where would the new prison be built?

PASCAL: Oh, I'll tell you two places it's not going to be. It's not going to be in Washington County or Anne Arundel because that's where about 85 percent of the incarcerated people are presently housed, and I think someone else has got to share that responsibility.

Q: What about Prince George's?

PASCAL: I have not made any decision. . . .

PASCAL: Governor, let me ask you something. Are you telling me that the early release of people because of overcrowding does not contribute to a high crime rate? Is that what you are saying?

HUGHES: What I'm saying is that my figures show that we have not commuted or paroled more people than my predecessors.

PASCAL: Are you saying that that policy of commutation and early release that Hughes' first corrections chief shoved down our throats did not contribute to the high rate of crime that went on in our state. Is that what you are saying?

HUGHES: Oh I would not say that. Maybe some of the early releases do have a high rate of recidivism. On the other hand, the statistics show that if you leave people in the system until you have to release them by law . . . if you don't do something to try to rehabilitate, to adjust them to getting back into society . . . that the rate of recidivism among those that you just leave there until you have to let them go is much higher than those that you try to work with.

PASCAL: Was that a yes or no answer? I can't follow that. Did this policy that you adhere to did not contribute to the crime problem in the state of Maryland?

HUGHES: Well I'm not going to say that it did.

PASCAL: Well that's where Mr. Hughes and I differ.

HUGHES: Oh we differ on a lot of things.

PASCAL: But I will tell you that, that we can substantiate. But let me say this to you. He made a statement that when somebody is incarcerated over the length of his sentence that he comes out worse than when he went in.

HUGHES: Who said that?

PASCAL: Didn't you just say that?

HUGHES: No. Education

Q: A pending court case could drastically affect funding of education by ordering that the same amount of tax money be spent on education, regardless of the locale or ability of the jurisdiction to finance public schools. How far should the states go in seeing that spending is equalized in all localities?

HUGHES: I think one thing is obvious: That you're not going to bring any county down in what they're now spending. That would mean you'd have to bring them all up that aren't up to that, and that's where you come up with a horrendous figure.

I think it will probably take a re-looking at the whole state aid program for subdivisions in this state. I think the state does have a responsibility for the education of its children wherever they might live in the state. So I wouldn't want to abrogate that responsibility.

But if the restrictions on local initiative beyond the statewide figure are too, too severe, then I think it might be worth looking at some amendment to the constitution, but not really abrogating the state's basic responsibility.

There is a strong tradition in Maryland of local boards of education being local prerogatives to a certain extent in education. My hope is that there would be some flexibility allowed there for local initiative because I think that a degree of competition is good.

PASCAL: Under no circumstances can you deny local government the opportunity to spend as much as it wants on education or any other set of priorities that its elected officials establish, because they're accountable at the ballot box. If this decision prevails, the legal people would have to decide whether you'd appeal it further on to the federal courts, whether you'd have a constitutional amendment; I would have no hesitation doing whatever it took to keep that initiative at the local level.

Q: Philosophically though, basically you're saying you support the possibility of one county spending more than another.

PASCAL: Oh absolutely.

HUGHES: Yes well, I don't have any problem with that as I said. And I don't know that we have any difference of opinion here. My druthers are that we continue with the present program that we have, which I think is working well because the state does put more money into areas for education where they don't have the local ability to fund to the extent that they should.

PASCAL: Let me just put an adjunct there, if I may very quickly. I'm an advocate of neighborhood schools even when they're half full, if that be the prerogative of the local government, and I think the state ought to encourage them and I'll tell you why. There are so many other things you could do with that additional space.

You could house senior citizens, you could use it as communities. We did not close a school in our county and our population dropped. I think that's what people are willing to spend their money for: that neighborhood school. I think it's got tremendous advantages over closing them and getting into bigger institutions.

We've tried both and there's a tremendous advantage in keeping a local school open even if the dollars and cents initially do not come out, because I think that additional space could be utilized very productively.

Q: When you talk about neighborhood schools -- not you -- but when some people talk about neighborhood schools, they're talking in code about either preserving an existing all-white neighborhood or preventing integration by closing a school. Can you just tell us what your view is about busing for integration purposes?

PASCAL: That never came up, but I will tell you this: I don't think we should bus. I think people ought to have equal education in their neighborhoods.

I never gave it any thought about the remark I made because in our county we don't distinguish, and we've got good educational schools everywhere. It never occurred to me that that might be a thought. But I think everybody's entitled to good education in their neighborhood and our neighborhoods don't show any distinction as far as color is concerned. Abortion

Q: Seventy-five percent -- or roughly that amount -- of the women in this state who get state-funded abortions do so for mental health reasons. Obviously that's an issue of some controversy. What is your firm position on whether the state should continue to fund?

PASCAL: I think if that particular provision was being abused and not for very significant medical reasons, I would restrict it some.

Q: Do you think that if a woman comes in and wants an abortion -- in most of these cases . . . in some way it's going to be a source of depression for her or mental anguish -- that that justifies it?

PASCAL: Well, I'm not so sure of the criteria, but if that particular area is being abused, and it is not a significant health reason, I would narrow that language. I think that they have to have a legitimate doctor make a comprehensive study as to the health of the mother.

Q: Including the mental health?

PASCAL: If the mental health genuinely is a factor, then I think it ought to be considered. The governor and I have a difference of opinion on that. One thing I wanted to ask him though, when we fill out these forms political groups' questionnaires , do you think that you ought to have parental consent for a teen-ager having an abortion. How did you fill that out?

HUGHES: I don't remember.

PASCAL: Well, tell it to me now, what do you think?

HUGHES: Not in every case, no, I don't think so.

PASCAL: Well, there's a big difference. . . . Do you think they should have it without parental consent?

HUGHES: I think it has to be done very, very carefully, but I could not say that in every single case that there has to be consent. And I do support and have supported abortion funding for physical and mental reasons .

Q: So you would tighten that mental health?

PASCAL: Yes, yes I would.

Q: That's a crucial point. The anti-abortion people are very upset about that.

PASCAL: I would tighten up the mental health.

Q: Would you get rid of it except in the case of, like, suicide?

PASCAL: And I'm not being evasive, truly I'm not. I'd have to study the language and just what type of situation was being conducted in this state. But I want to be sure that I was clear with the governor on his point about the teen-ager.

Q: It's clear that Hughes would support the existing law and Pascal would tighten it.

PASCAL: I would tighten it.