Local government budget analysts trying to master the intricacies of the Gramm-Rudman-Hollings act were told last week that, in the fiscal year starting in July, program cuts resulting from that federal budget balancing law could cause hardship to local economies.
As a center for military contractors, Maryland is vulnerable because of its sensitivity to changes in defense spending, the analysts were told.
State budget experts have estimated that Maryland will lose about $16 million in federal funding in the current fiscal year, but up to $116 million in the 12 months starting in July.
The officials were attending a seminar sponsored by the University of Maryland's School of Public Affairs last week for municipal, county and state budget analysts. They wanted to know how their jurisdictions are affected by the newly passed measure, which sets out guidelines for five years of deep annual cuts to reduce the federal deficit.
The analysts learned that with differences in the federal and state budget years and other institutional factors, "virtually nobody is hit particularly hard" in the short run by the planned $11.7 billion federal budget cut, which is scheduled to go into effect March 1 unless Congress enacts an alternative.
Instructor Susanne Slater, a former senior adviser to two Senate committees, told them: "By the time you get down to the Maryland budget, you've got a 1 percent cut."
The real impact, however, comes in the fiscal 1987 budget that starts for the state and local governments July 1 and for the federal government three months later, Slater said.
That could be a time of particular stress for local officials because of uncertainty about what programs will be cut and whether cuts are Gramm-Rudman related or simply a result of previous congressional action. And local officials will also have to be concerned about changes in the local economy resulting from cuts in the defense contracts that supply thousands of Marylanders with jobs.
The recent federal court decision invalidating some provisions of the Gramm-Rudman-Hollings law adds to the uncertainty that officials are facing.
"It sounds like Montgomery's worst fears are being realized" in the next few years, said Mark Dubinsky, a senior management specialist for Montgomery County's Office of Management and Budget.
Dubinsky noted that although Montgomery derives little direct grant money from the federal government -- $34 million in fiscal 1986 out of a $968 million operating budget, according to County Council staff director Art Spengler -- a large portion of its local economy, like that of the state's, is fueled by defense-related industry.
Another key issue for local governments is how the state will choose to allocate cuts in federal funding. Slater pointed out that it is very likely that programs not based on need are more likely to be vulnerable to cuts by state leaders. Traditionally, they have been receptive to programs that redistribute funds from wealthier areas such as Montgomery County, to poorer counties and Baltimore City.
Local leaders' problems are compounded by the fact that there are few reliable indicators to help them prepare for the future.
"We simply do not know what the economic assumptions or congressional action for fiscal '87" are going to be, said Slater. And the programs where officials can predict reductions, such as education, housing and mass transit funding, are the programs that have been reduced in the past. Unlike Social Security, they are not specifically protected from across-the-board reductions under Gramm-Rudman.
"According to what they cited, the impact could range from the economy functioning as usual to a couple of bad years," said John McClain, director of Metropolitan Development and Information Resources for the Metropolitan Washington Council of Governments.
McClain compared the expected impact to the first years of the Reagan administration, which saw layoffs of federal employes along with a defense buildup that created employment.
"In '81-'82 we had experienced a number of layoffs; also, in the early '80s we had large increases in private contracting. So according to what they cited here, if the worst case were to happen we would lose both. However, if the best case were to happen, there would be no impact," he said.
Although repeatedly cautioning that predictions are unreliable, Slater pointed to some areas that could cause trouble for local budget makers in the next few years, including:
*Economic development aid: The effect of Gramm-Rudman and previous attempts to eliminate these programs is less significant than "a long-term trend of Congress finding them more acceptable cuts," said Slater. "What this is going to mean is far less in (urban redevelopment) and economic development supports."
*Mass transit. Block grants. Education: Long-term policy trends indicate that cuts will come in these programs in future. "It's going to wind up in a very volatile situation where it gets wrapped up with local property tax," she said.
*Capital projects: "There will be a difficulty in planning capital projects where federal support is involved. They are either going to come to a halt or there is going to be a great deal of uncertainty, especially in the mass transit area," Slater said.