News

No Magic in Ehrlich Budget, Just Cuts, Slots, One-Time Fixes

By DAN GENZ

Capital News Service—ANNAPOLIS

Predictions about Gov. Robert Ehrlich's budget released Friday for the most part proved true.

Ehrlich tapped the Transportation Trust Fund, trimmed higher education and relied on licensing fees for slot machines, which have yet to get state approval, to balance his $22.8 billion budget.

The state faced a $1.8 billion budget gap through fiscal 2004, however Ehrlich's budget would end up producing a small surplus and come in $35 million under the Spending Affordability Committee's guidelines by increasing spending only 1.8 percent.

"This is the hand we were dealt," Ehrlich said. "This budget is a sustainable honest budget . . . It is a budget that meets the needs of providing for the citizens of the state."

Getting his fiscal program through a General Assembly with significant opposition to his slot machine idea will be a difficult road, some lawmakers said. But Ehrlich vowed to veto any income or sales taxes the Legislature might pass to replace slots.

The budget relies on almost $400 million from the approval of slot machines and $700 million from both fund transfers and budget reductions to balance the state's deficit. At the same time, it fully funds public school recommendations from a public school reform panel.

Ehrlich's plan also spares the state's $505 million rainy day fund.

The budget slashes 1,387 vacant positions throughout the government and transfers $300 million from the Transportation Trust Fund to the general fund.

Higher education was cut almost 7 percent and the state took $29 million from the University System of Maryland's reserve funds. The university system warned students Jan. 9 that rare mid-year tuition hikes may be necessitated by Ehrlich's budget cuts.

On Friday, University System Chancellor William E. Kirwan said, "The immediate reductions . . . will require difficult decisions."

Ehrlich's solution to this year's $547 million deficit and next year's $1.3 billion deficit complied with three parameters he laid out in his campaign:

He fully-funded the so-called Thornton commission recommendations this year, imposed no "warm body layoffs" and included no new taxes.

Calling the budget a "return to common-sense funding," Ehrlich noted that his first budget was also the first time in six years that the governor's proposal came in lower than the Spending Affordability Committee's suggestion.

Lawmakers were not happy with Ehrlich's reliance on one-time fixes and revenue from unapproved and controversial slot machines.

More than a third of the budget solution came from funds and transfers that cannot be used in the future.

"I don't think you can continue to borrow from the special funds," said House Speaker Michael Busch, D-Anne Arundel. "We should take the long-term look to find out what (is the) best structural function for the state revenues over the next four or five, 10 years," Busch said.

The balanced budget can't be sustained with single-year action. There will be a deficit in 2005 unless continuing revenue sources or budget cuts are found, lawmakers said.

"There's nothing magic about this budget," Ehrlich said. "Spending money you don't have" is what led to the continuing deficit.

Slot machine revenues are the answer to some of the state's fiscal problems, and he will accept no substitute, he said.

"You can go 'Let's take more income tax, more sales tax.' That's the way it's always been done," he said. "That's not why this administration was elected."

He said he believes he has the votes to legalize slot machines.

Some lawmakers disagree.

"It's going to be difficult at best to get a slots bill passed, and unless the money is earmarked for education, it's going to be more difficult," said Sen. Chairman Ulysses Currie, D-Prince George's, chairman of the Senate Budget and Taxation Committee.

More than 50 percent of the money from slots will go to education, Ehrlich said, but it will be dumped in the general fund rather than earmarked. That could spark a debate about the future of slots from a number of high-ranking supporters, afraid the slots money will not be set aside for education.

Bills legalizing slot machines are expected to start appearing before both the House and Senate sometime next week.

Although the details of Ehrlich's slot-machine bill will not be released until it's introduced, his budget anticipates licensing fees from four horse racing tracks to garner $350 million and revenues to produce another $45 million by June of 2004.

He also said there will be a lot fewer slot machines than the 18,000 the horse racing industry asked for in its proposal earlier this month. That recommendation promised $50 million less in licensing fees and requested an additional slot machine location.

Slotting money for education would make the machines more popular in the House, said Appropriations Chairman Pete Rawlings, D-Montgomery.

"He made it clear today that his entire focus was to regenerate the troubled racing and horse industry in our state," Rawlings said. "I think he's finding that that's not widely supported by my colleagues in the House who feel that revenues from the slots should go to address public education."

Rawlings produced a rival plan asking for $500 million in licensing fees and allowing 10,000 slot machines. His bill also calls for half the proceeds to go into the Education Trust Fund.

While slots will provide consistent revenue, the transportation department provided $300 million from funds planned for later projects.

The effect of the funding will not be felt until 2006, when the transportation projects were scheduled. Funding for projects scheduled for 2006 through 2008 will either be cut or kept level. "Hard choices have to be made and the DOT stepped up to the plate and made them," said transportation spokesman Jack Cahalan.

Ehrlich considered a 5-cent gas tax worth $125 million a year instead of the transportation fund transfer, but rejected the idea. He said the tax was insufficient and inappropriate.

Maryland's gas tax already ranks among the top 20 in the nation, Ehrlich said, and roads need much more steady income than it would produce. Busch had ideas the governor might not want to hear, including increasing a sales tax on businesses to raise $600 million a year.

The budget will begin in the House of Delegates this year, before being passed to the Senate.

Maryland law requires the Legislature to pass a balanced budget before adjournment. The governor must ask for an additional 30 days if the General Assembly has not passed a balanced budget by the 83rd day.

Capital News Service reporters Eric J. S. Townsend and Tom LoBianco also contributed to this report.

1/17/03