O'Malley Seeks Tax Increases By January

By John Wagner
Washington Post Staff Writer
Saturday, September 29, 2007

There is a good reason why Gov. Martin O'Malley (D) seems eager to see a special session of the General Assembly this fall: Without one, the budget proposals he spent the past two weeks rolling out would not close Maryland's $1.7 billion shortfall.

By his administration's own projections, O'Malley's initiatives would leave a $163 million hole in next year's budget -- and a nearly $500 million gap the following year -- unless a series of tax increases are passed in time for collections to start in January.

Some leading lawmakers, including House Speaker Michael E. Busch (D-Anne Arundel), continue to suggest that they should wait until their annual 90-day session starts in January to weigh a series of fixes to Maryland's $15 billion general fund budget. There is no rush, they argue, because the budget is balanced through June, the end of the state's current fiscal year.

But a close reading of O'Malley's proposals shows that his plan depends on $572 million in increased revenue collections between January and June. That money -- from higher income, sales, corporate and tobacco tax collections -- would be used to help fill holes in the next two years' budgets so that they balance.

"The whole plan is predicated on money starting to come available," said Senate President Thomas V. Mike Miller Jr. (D-Calvert), who has been urging O'Malley to call a special session. "He needs to move forward now, or the problem is compounded."

If the legislature does not meet until January, O'Malley aides said the governor would be forced to offer tax increases or spending cuts beyond those put forward in two weeks of carefully choreographed announcements.

"We think having a special session is the better option," O'Malley spokesman Steve Kearney said. "If we don't deal with this upfront, we've got to come up with another half-billion dollars somehow."

As governor, O'Malley can unilaterally call the special session, but he has no say over when lawmakers adjourn. O'Malley has said repeatedly that he wants a special session by early November, but aides suggested that he is trying to build more consensus for his proposals among legislators before announcing a start date.

Among the most controversial of O'Malley's proposals is legalizing slot machine gambling, an issue that paralyzed the legislature during the tenure of former governor Robert L. Ehrlich Jr. (R). O'Malley has said his plan would eventually generate more than $500 million a year in revenue for the state, but he has not provided specifics about locations and other key issues.

In an interview yesterday, Busch said he continues to believe a special session is not a wise course.

"I understand that revenues would come in quicker if you have one," Busch said, "but my counsel to the governor is I do not think it's a good idea."

Busch said delegates would be helped by seeing O'Malley's full budget proposal for the next fiscal year -- a document the size of several phone books that is traditionally unveiled in January -- before deciding which taxes to raise.

And he said the complicated nature of what O'Malley has proposed in recent weeks requires time for lawmakers to digest it.

"There's never been a special session of this magnitude," Busch said. "You're asking people to come here who are part-time legislators who haven't been fully engaged in Annapolis since April. . . . I think this is a major undertaking."

The proposals put forward by O'Malley include an overhaul of the state's personal income tax brackets; an increase in the sales tax from 5 percent to 6 percent; a 3-cent cut over three years in the state property tax; an increase in the corporate income tax from 7 percent to 8 percent; an increase in the titling tax on vehicles from 5 percent to 6 percent; and an increase in the cigarette tax from $1 to $2 a pack.

In addition to closing the $1.7 billion shortfall in the general fund, O'Malley is seeking to raise $400 million a year for transportation priorities funded through a separate budget. He has also detailed a few new spending plans during the past two weeks, including some health-care initiatives that would cost more in later years.

Miller said in an interview yesterday that lawmakers have no reason not to act now that O'Malley has put forward a reasonable plan.

"You can't keep saying, 'Aim, aim, aim,' " he said. "You've got to pull the trigger."

Miller said another cost of waiting to address the budget is that it will take longer for the state to generate revenue from slot machine gambling. Once licenses are awarded, it will take a few years for facilities to come on line, lawmakers say.

O'Malley's budget assumes only $27 million in slots-related revenue next year. He projects proceeds will reach $250 million the following year and $500 million the year after that.

Besides Busch, those counseling delay include Comptroller Peter Franchot (D), the state's chief tax collector. Franchot said in a recent letter to lawmakers that the volatility of the economy is making revenue projections for the next fiscal year uncertain. He said his office hopes to have a more reliable forecast by December.

"This is the biggest tax change in probably 40 years," Franchot said yesterday.

"Because it's so complicated and large, we should take a cautious approach and examine the governor's proposal from every perspective. That argues against a special session, which by definition is rushed."