O'Malley's Budget Compromise Sinking in Committee

By Annapolis Digest
Friday, March 28, 2008; B06

A compromise floated by Gov. Martin O'Malley to allow for the repeal of Maryland's computer services tax is short of the votes needed to move it forward in the Senate, leaders of the chamber said yesterday.

O'Malley (D) suggested this week that lawmakers could compensate for the $200 million a year that would be lost in repealing the "tech tax" by imposing a surcharge on the income of millionaires, diverting $50 million from transportation projects and requiring additional budget cuts in state agencies.

Sen. Ulysses Currie (D-Prince George's), chairman of the Budget and Taxation Committee, said "it doesn't look good" when asked about the prospects of a package like that winning approval from his panel.

"The governor's going to have to get the votes," Senate President Thomas V. Mike Miller Jr. (D-Calvert) said, suggesting that lawmakers could instead make much deeper cuts to the budget to offset the lost revenue. "It's either going to be cut the budget by $200 million or the governor's compromise plan."

Momentum to repeal the computer services tax has grown considerably in recent weeks. The 6 percent levy, which was passed during last fall's special session, would apply to a range of services, including custom software design and data processing.

Business groups have said the tax, to take effect July 1, could drive information technology firms out of the state.

Currie ticked off budget cuts that senators could consider if they do not follow O'Malley's lead. Those include the remaining $25 million earmarked for a new fund to help clean up the Chesapeake Bay. Lawmakers have already agreed to cut the first contribution to the fund from $50 million to $25 million.

Currie said funding could also be scrapped for an expansion of subsidized health insurance that lawmakers passed during the special session, and he suggested senators could make additional cuts to public schools and higher education. Currie said he is planning to hold a work session Monday to explore options.

Asked at a news conference yesterday whether he has reached a deal with legislative leaders, O'Malley said: "No, I haven't, but we're working on it."

Miller said the situation is complicated by Montgomery County officials' aversion to the computer services tax as well as to two leading alternatives: imposing a millionaire's tax and cutting transportation spending.

"There's got to be some soul-searching in Montgomery County," Miller said.

Under a proposal floated by O'Malley, the top marginal income tax rate would rise from 5.5 to 6.25 percent on taxable income in excess of $1 million. That proposal could generate about $100 million a year for the state.

The new tax rate would affect about 0.2 percent of filers statewide, about 40 percent of whom live in Montgomery, the state comptroller's office said. Among the issues under discussion is whether the rate would be permanent or expire after three years.

-- John Wagner

Physical Education Bill on Hold

The Maryland Senate effectively shelved a bill yesterday that would have required public elementary schools to provide at least 150 minutes a week of physical activity, including at least 90 minutes of physical education.

Senators instead agreed to set up a task force to study physical fitness in the state's schools, a move that the bill's sponsor said would allow another run at the issue next year.

"I know that this bill has to live another day," Sen. David C. Harrington (D-Prince George's) told his colleagues on the Senate floor.

Harrington had pitched his bill as a way to combat growing obesity and obesity-related conditions, including Type II diabetes, among the state's schoolchildren. But critics pointed to the unfunded mandate that his bill would impose on Maryland's 24 school systems.

Legislative analysts estimated schools would collectively have to spend $26.5 million to hire additional personnel to comply. The original version of Harrington's bill applied to kindergarten through eighth grade. It was later amended to end after fifth grade.

The amendment to create a task force was offered by Sen. J. Lowell Stoltzfus (R-Somerset).

-- John Wagner

Chambers Iron Out a Few Differences

Negotiators from the House and Senate yesterday resolved several dozen differences -- most of them relatively minor -- in the $31 billion budgets that the two chambers have passed.

The two sides are scheduled to meet again today with hopes of doing some heavier lifting.

Among the differences that remain: how much to spend on stem cell research grants in the fiscal year that starts in July. The House budget includes $15 million, while the Senate includes $5 million. Gov. Martin O'Malley (D) had proposed spending $23 million.

The most significant issue resolved yesterday was a decision to follow the House's lead in diverting additional funding from an account for future liabilities for state retiree health benefits. Doing so will increase the cash the state has in reserve to weather a prolonged economic downturn.

-- John Wagner