The Squeeze on the Region
MARYLAND OFFICIALS were saying proudly a couple of months ago that they expected the state to run a modest surplus in the current fiscal year. Now they're looking at a deficit instead. To begin to ward it off, Gov. Parris Glendening this week ordered more than $200 million in budget cuts, and it's likely there will be more if, as expected, the Sept. 11 attacks accentuate the economic slowdown that was already underway.</br></br>The same pattern is evident in Virginia, though there, officials struggling to protect the governor's irresponsible car tax repeal have been slower to respond. The state was giddily projecting 7.5 percent revenue growth for the fiscal year. In fact, in the first quarter of the year, from July through September, revenue collections were down 2.4 percent from the year before, and that too was mainly before the September attacks.</br></br>The District is in a similar bind. The attack on the Pentagon, the temporary closing of Reagan National Airport and the drop-off in tourism have delivered sharp blows to the city's economy. As D.C. chief financial officer Natwar Gandhi announced yesterday, it seems possible that local sources of revenue could be reduced by as much as $90 million to $100 million in fiscal 2002 compared with the fiscal 2002 budget estimate. And there's a good chance the current revenue estimate for fiscal 2003 will also need to be reduced.</br></br>The District's difficulties are compounded by its debt burden, the second highest in the nation among cities. That heavy load limits the city's borrowing capability. And the city's problem is more basic: a long-term structural imbalance between its revenue base and required expenditures, brought on by restrictions on the city's taxing authority. Five years of economic good times masked that imbalance, as Mr. Gandhi said yesterday. With the economy souring, "the imbalance will become glaringly apparent," he said.</br></br>All over the country, state and local governments are having to cut back, or else raise taxes. They have no choice; their revenues are down and they are bound by law or tradition to balance their budgets. But the squeeze occurs at precisely the wrong time. By cutting back, the states amplify the downturn that afflicts them, and the amplification is the greater because the cuts come just as more people are qualifying for unemployment benefits, welfare and Medicaid; spending goes down when it ought to be going up. This time around, state and local officials, particularly in such areas as this, face sharply increased security costs as well.