Senate Seeks Cuts Beyond O'Malley Plan

Lawmakers Discuss Levying State Sales Tax on Some Services That Are Now Exempt

Maryland lawmakers contemplated yesterday making deeper spending cuts and applying the state sales tax to different services from those Gov. Martin O'Malley (D) has proposed in a special session to close a shortfall next year of at least $1.5 billion.

The discussion followed a week of hearings on the governor's revenue proposals in which many of those affected by O'Malley's tax plans vigorously objected. The governor has proposed increasing Maryland's sales tax from 5 to 6 percent and applying the levy to a handful of services that are currently exempt, including health clubs, tanning and massage parlors and property management services.

During a five-hour work session, Senate budget writers presented O'Malley administration officials with a lengthy list of other services and asked for suggestions in coming days about which ones to add to the package.

A House committee also held a hearing yesterday on applying the sales tax to other services, including automobile repairs, salon haircuts and management consulting. Maryland currently applies its sales tax to fewer services than most surrounding states, according to legislative analysts.

Sen. Ulysses Currie (D-Prince George's), chairman of the Budget and Taxation Committee, told reporters he had not reached any conclusions about what services should be added to the governor's package. "What I think is a good idea is what we can get passed," Currie said.

Senate Minority Leader David R. Brinkley (R-Frederick) objected to talk of adding services after holding hearings in which lawmakers heard from fitness buffs who do not want their gym memberships taxed and real estate agents opposed to taxing building owners who employ property managers, a common practice with large apartment complexes.

"I'm worried that someone gets hit by ricochet, if you hit somebody else and they had no idea it's coming," Brinkley said.

Currie's committee also presented O'Malley officials with a list of 45 potential budget cuts prepared by legislative analysts and asked for input in coming days about which they might support. House leaders initiated the push for more reductions last week.

Legislative analysts said they think at least $100 million in cuts beyond what O'Malley has proposed will need to be made to balance the budget when the next fiscal year starts in July.

Currie played down the likelihood of some of the more politically sensitive cuts becoming reality, including freezing funding for higher education -- which probably would prompt sizable tuition increases -- and asking counties to pay a portion of teachers' retirement costs. O'Malley has proposed slowing the planned growth of education spending in coming years.

Other possible cuts include canceling planned cost-of-living increases for state workers, eliminating 750 vacant jobs and spending less than planned on stem cell research grants, a new initiative in Maryland.

The Senate budget committee also balked yesterday at O'Malley's proposal to move to "combined reporting," a method of collecting corporate income taxes that seeks to capture revenue lost by businesses that shelter income in out-of-state subsidiaries. The proposal has met stiff resistance from business lobbyists.

"Quite frankly, I don't think we have the votes for combined reporting," Currie said, suggesting that a study of the practice is a more likely outcome.

O'Malley has been pushed on the issue by liberal groups that contend that corporations are not paying their fair share of taxes. O'Malley has also proposed raising the corporate income tax from 7 to 8 percent -- a proposal more likely to survive.

Senate leaders have said they hope to start putting parts of O'Malley's package on the floor for votes by early this week. But some members expressed frustration yesterday with the pace of deliberations. There was no discussion, for example, of O'Malley's most controversial proposal, a referendum on the legalization of slot machine gambling.

"I'm surprised we didn't do more today," said Sen. Richard S. Madaleno Jr. (D-Montgomery). "I'm worried this is the family I'll be spending Thanksgiving with."