Gov. O’Malley: Tax increases may be needed in Md.

August 20, 2011

Gov. Martin O’Malley said Saturday that tax increases could be necessary next year because Maryland faces a $1 billion budget shortfall as well as great uncertainty about how Congress’s action to reduce the federal debt will impact the state.

Speaking to a conference of county leaders, O’Malley (D) offered no specifics but said he will consider a range of “new revenues” to help close a projected budget gap that is likely to grow in December after the new congressional “supercommittee” completes its work.

“Any further help from Washington, I think you would agree . . . that’s pretty doubtful,” O’Malley said. “In fact, more likely is a lot more serious hurt. . . . We will have to make more cuts, and at the same time, to protect our children’s future, we must be open to new revenues.”

O’Malley said he will pursue “a balanced approach” to preserve investments in education and programs that spur job creation, in contrast to that of what he called “the obstructionist, economic saboteurs in Congress.”

Talk of a possible tax increase brought a swift rebuke from Senate Minority Whip E.J. Pipkin (R-Queen Anne’s), who was in the audience.

“What planet does he live on?” Pipkin asked reporters afterward. “We have people who are trying to make ends meet. . . . I don’t think Maryland, by any objective benchmark, is undertaxed.”

The governor’s speech at the closing session of the Maryland Association of Counties punctuated a four-day conference at which uncertainty was an underlying theme.

Just as state leaders are anxious about how federal actions will affect programs such as health care and transportation, county officials are bracing for the effect of state-level cuts on their budgets.

Several powerful state lawmakers, for example, say Maryland should no longer pick up the entire cost of county teacher pensions. Shifting part of that responsibility to counties could save the state hundreds of millions of dollars a year but force tax increases or additional spending cuts at the county level.

In his speech, O’Malley, who has resisted such a shift, did not weigh in on the debate, which is likely to come to a head after the General Assembly reconvenes in January. After his remarks, O’Malley declined to discuss which revenue increases are on the table.

He has been willing to raise taxes, most notably during a special session in 2007, his first year in office. To close a budget shortfall, lawmakers approved increases totaling $1.4 billion a year in sales, corporate, tobacco and other taxes, according to estimates at the time.

Since then, O’Malley and lawmakers have made repeated rounds of spending cuts — a cumulative $6.8 billion, according to the governor’s office — as tax revenue fell sharply during the recession.

Revenue collections have started to pick up, but state analysts are projecting a gap of more than $1 billion in the fiscal year that starts next July.

A blue-ribbon commission created by the legislature has also recommended raising an additional $800 million a year in new revenue for a backlog of transportation needs, which are funded through a separate budget. That would likely mean an increase in the state’s 23.5 cent-a-gallon gas tax.

Earlier in the year, O’Malley and lawmakers explored handling some budget issues in a special session this fall, when legislators will convene in Annapolis to redraw congressional district maps. On Saturday, O’Malley played down that prospect because of the uncertainty in Congress.

“It’s really hard to know the extent of the fix until the supercommittee completes its work,” O’Malley said.

Howard County Executive Ken Ulman (D), president of the county organization, said he is sympathetic to O’Malley’s position after a closed-door meeting Friday between the governor and top county leaders.

“We’re going to have to stay nimble and see what our reality is,” Ulman said, adding that the cuts coming from Washington “could be worse than anyone’s thinking.”

Action — or inaction — by Congress could force the state’s hand on transportation issues sooner than that. The House and Senate have prepared very different versions of legislation to reauthorize federal surface transportation funding.

Speaking on a conference panel Friday, Maryland Transportation Secretary Beverley K. Swaim-Staley said she is not optimistic that differences will be worked out by the end of next month, when authorization expires. Even a temporary break in federal funding could halt tens of millions’ worth of state transportation projects, she said.

Congress also faces a Sept. 30 deadline to reauthorize a federal gasoline tax of 18.4 cents per gallon. The tax is the largest source of federal funding for road and mass transit projects.

Although such votes have been routine, some Republicans have suggested they may balk at reauthorization this year. If the tax is not reauthorized, states will have to decide whether to assume a larger role in funding transportation.

“I don’t know what’s going to happen this year,” Swaim-Staley said. “We’ve never been in such a precarious position on the federal side.”

John Wagner has covered Maryland government and politics for The Post since 2004.
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