What Mr. O'Malley Achieved
FACED WITH a gaping hole in Maryland's budget, Gov. Martin O'Malley (D) gambled by calling a special session of the General Assembly to put forward one of the broadest tax overhauls in state history, along with major spending proposals. On Monday, just two months after rolling out his plan and three weeks after convening the special session, he celebrated a kind of victory -- not for getting exactly what he wanted, which he didn't, but in righting a grave fiscal and budgetary imbalance that his predecessors helped create and then blithely ignored.
There is plenty to dislike in the package that emerged from the legislature, not least that in raising $1.4 billion in new taxes starting next year, it puts a comparatively heavier burden on the middle class than on the rich. That is the case mainly because of a higher sales tax, which will be felt by average Marylanders more than by top income-earners. And the package will be even less progressive if the O'Malley-backed proposal to allow 15,000 slot machines at five sites (3,500 more than he originally proposed) is passed by Maryland voters at referendum a year from now.
Gambling parlors tend to soak working stiffs and those on fixed incomes, acting, in effect, as a voluntary tax on the middle class and the poor. It is distasteful, to put it mildly, that the nation's richest state is embarking on such a regressive tax regimen. And it is outrageous that some $100 million of the annual take from slots -- estimated at $650 million a year by 2012, if voters approve -- would be used to subsidize racetracks and the state's noncompetitive horse-breeding industry, which have greased politicians' palms with large campaign contributions for years.
For that voters can thank chiefly the General Assembly's capo di tutti capi, Senate President Thomas V. Mike Miller, for his relentless advocacy and strong-arm tactics in service of the pro-slots crowd. But Mr. O'Malley is hardly blameless. In shunting slots off to voters, he finessed a debate that tied his predecessor in knots for four years. That may bespeak a pragmatic knack for divining the path of least resistance. But the potential cost of slots is a taint on the balance of his package, and it raises the specter of corruption, gambling addiction and fat future payoffs for the politically well connected.
It's also fair to ask whether the governor and his fellow Democrats who control the legislature did their utmost to cut spending before ordering up $1.4 billion in taxes and half that much again from slots. True, lawmakers told Mr. O'Malley to slash $550 million in planned outlays in the budget year starting next July; that's on top of the $280 million the governor has cut this year. But rather than downsizing the state's payroll by eliminating 1,000 vacant positions, as was originally discussed, the House of Delegates recommended scrapping just 500 jobs. It seems the bureaucracy will not be asked to suffer quite as much as taxpayers will.
On top of that, the General Assembly, an insular and clubby institution, displayed all the procedural nastiness for which it is notorious. Interest groups with savvy lobbyists and deep pockets got special breaks; car dealers, for example, were treated to a subsidy worth $80 million. Those who lacked comparable clout, like some segments of the computer services industry, will be hit by a sales tax increase that, inexplicably and illogically, still does not apply broadly to most services in the state.
STILL, the governor's achievement remains considerable. In office less than a year, he was forced to deal with an inherited, ingrained and swelling structural deficit, which under state law must be closed. Republicans, none of whom voted for the plan, are skewering him for what they are calling a profligate tax-and-spend program. But by helping to pass reckless tax cuts, Republicans were complicit in creating the conditions that led to a budget shortfall that had been projected at $1.7 billion next year, which would be more than 10 percent of general fund spending. Mr. O'Malley had to find a fix, and the menu of options he faced was unappetizing.
Laudably, the tax package recalibrates the state's income tax system for the first time in 40 years by revising what has been a flat levy of 4.75 percent on virtually everyone. Three new brackets -- 5 percent, 5.25 percent and 5.5 percent -- will now apply to upper income-earners. That's the most progressive regime Mr. O'Malley could get, given a stubborn handful of Montgomery County lawmakers who were looking out mainly for their wealthiest constituents. According to the governor's office, 46 percent of Maryland households will end up paying the same or less in combined sales and income taxes; the tax bill for a family of four making the median income of $65,000 will fall by $53. Corporate income taxes will rise modestly, as will titling taxes for vehicles.
Politically, Mr. O'Malley will have more than higher taxes to show for his gamble. The new revenue will not only close the deficit, it will also help to clean up the Chesapeake Bay, extend health-care coverage to 100,000 lower-income Marylanders, build public schools, and add facilities for state colleges and universities. In addition, and critically, the governor secured about $420 million in fresh annual revenue for transportation, the biggest infusion of new money in 15 years. It will pay for the upkeep of the state's aging transportation infrastructure and for new roads and transit projects. Much of that funding will go to Montgomery County -- more than $250 million over the next three years for critical priorities including engineering for the Purple Line transit link between existing Metro lines in Bethesda, Silver Spring and New Carrollton; and for the Corridor Cities Transitway, connecting Shady Grove and Clarksburg. What's more, $50 million will be dedicated for annual funding of Metro, which could help unlock $1.5 billion in matching federal funds for the transit system over a decade.
Those are big achievements, any one of which might have been seen as an important accomplishment. They provide the governor a platform on which to run for reelection or higher office and an argument to support his claim to an expansive, generous vision of government's role. To have gotten them all after just 11 months on the job is a testament to Mr. O'Malley's tenacity, flexibility, political acumen and lobbying skills, as well as to a Democratic-dominated legislature that was eager to hand him a big success.