Maryland's state government, which six months ago faced a major fiscal crisis, is now expected to have a surplus of more than $150 million by mid-1982, enough to cover a raise for state employes and an increase in welfare benefits next year without a general tax increase, Gov. Harry Hughes said today.
"We're settin' pretty," a beaming Maryland Comptroller Louis Goldstein announced after reporting to Hughes on the state's improved financial health. Maryland is now expected to finish the 1981-82 fiscal year with a surplus of $152 million -- $90 million more than expected last March.
But the brightened report that Hughes received today did not signal a return to the bounteous days of the 1970s, when Maryland surpluses grew as high as $300 million, giving rise to major tax-relief measures, several officials stressed. It dealt only with state revenues, not with federal funds, of which Maryland is expected to lose at least $50 million -- $117 million, according to one estimate -- as a result of the Reagan administration's budget cuts.
Hughes vowed not to use the state surplus to replace lost federal funds, meaning a certain cutback in state services in the next years. "There's no way we can make up all the cuts of the Reagan administration with state funds," Hughes said. "If we try to do it, we're sacrificing our own state employes who are entitled to a pay raise."
Hughes said he expects to have $19 million left over from the pay raises and welfare increases -- "not any great big largesse," as he put it.
Also, a major portion of Maryland's new bounty comes from an unexpected source: high interest rates. Because the rates have remained around 20 percent all year, Hughes' traditionally conservative fiscal advisers today doubled their earlier prediction for state investment income, from $30 million to $60 million. Hughes called this a mixed blessing, since persisting high interest rates threaten to choke off small business activity and consumer spending and, in the long run, to erode state tax revenues.
Nonetheless, Hughes and his advisers said they were heartened to note modest increases in what the governor called "the two biggies" in Maryland's financial profile -- state sales tax collections, which were growing at the slowest rate in a generation last March, and income tax receipts. They said the combined $16 million increase in tax collections reflects a slight rebound in Maryland's economy, against the backdrop of a national decline.
Almost every aspect of Maryland finances addressed today appeared likely to be reshaped by Reagan's policies. Reagan's tax and spending policies are expected to speed the state's rebound, Hughes' fiscal advisers predicted in their report. "Economic activity should increase, buoyed by the tax cut, increased consumer and defense spending and prospects for moderately lower inflation and interest rates," the report said.
But one of Reagan's tax policies -- the increased breaks for corporations -- is expected to deal a serious blow to Maryland's already-strapped transportation trust fund, which pays for all mass transit, road and bridge projects, and relies heavily on corporate tax collections.
Spurred by a growing crisis in transportation finances last year, Hughes tried without success to persuade the state legislature to increase gasoline taxes by one penny on the gallon. He said today that he may try again this year, but plans first to attempt to rally legislative leaders behind him.
Other factors that improved Maryland's bottom line include the delays in the start of the District of Columbia's lottery game, which was originally expected to start this year. Maryland officials estimate that $25 million of state lottery tickets are bought by District residents who drive just over the city line to play the state lottery, and will probably no longer do so once they can play in the District.
Maryland also received $16.8 million more than expected in federal payments this year for Medicaid patients treated in state hospitals, Goldstein said.
These factors, along with the increased investment income and the growing sales and income tax receipts, account largely for Maryland's $62.2 million surplus at the end of the 1980-81 fiscal year, and the predicted $152 million surplus for next year, the fiscal advisers said.
The report was prepared by Maryland's Board of Revenue Estimates, a group of three fiscal officials who report regularly to Hughes on Maryland's financial health. A year ago today they said the state was heading for a $129 million deficit in 1980-81 unless Hughes made some midyear budget cuts, which he did.
Maryland law requires Hughes to submit a balanced budget, so his spending proposals cannot exceed the amount of money the board predicts the state will take in -- $3.09 billion in 1982-83, not including federal funds. That budget will include increases for employes' pay and for welfare benefits, but Hughes said he does not know how large they will be.
Although the officials of this heavily Democratic state predicted some salutary fallout from the Reagan policies, they did take a few slaps at the Republican administration. Speaking of reports that the federal deficit may be larger than originally expected, Hughes noted: "They obviously are very worried over in Washington because things don't seem to be working the way they hoped."
Asked why Maryland had recorded a surplus, Goldstein answered: "We have a good state. We all work together as a team."
To which Hughes added: "We're all Democrats, too."