Democratic leaders of the Maryland House of Delegates, hoping to balance the state budget without legalizing slot machines, are crafting a plan that would cut state spending by an additional $200 million and raise about $200 million in new revenue by increasing taxes on Maryland businesses.
House Speaker Michael E. Busch (D-Anne Arundel) said yesterday that House fiscal leaders are looking seriously at proposals to close what Democrats have described as "corporate loopholes" and at raising corporate filing fees from $100 a year to $250.
With the additional cuts and taxes, Busch is seeking an alternative to Gov. Robert L. Ehrlich Jr.'s proposal to place slot machines at some state horse racing tracks, which would raise an estimated $395 million in the fiscal year that will begin in July. Budget leaders in both the House and the Senate have said they are skeptical that expanded gambling would produce so much money that fast.
"We have to find an alternative," said Busch, the legislature's most influential opponent of legal slots.
Busch said he has dropped plans to consider a penny increase in the state sales tax or any increase in the income tax, including a temporary surcharge on individuals who make more than $100,000 a year.
Ehrlich (R) has threatened to veto any proposal to increase sales or income taxes. "In deference to the governor," Busch said, "we're going to leave [those] two things off the table."
Though he has threatened to veto some tax increases, Ehrlich has said he would consider signing legislation to close "classic corporate loopholes." Ehrlich also has questioned Democrats' use of the term "loophole," saying that "one man's loophole is another man's wise tax policy."
Yesterday, Ehrlich spokesman Paul E. Schurick repeated that theme. He said Ehrlich is "troubled" by one proposal gaining support in both the House and Senate, a plan to tax certain property transfers. "There are some compelling arguments being made that it would further the perception that Maryland is anti-business," Schurick said.
Maryland lawmakers, who face a record gap of nearly $1.8 billion between revenue and projected spending, have until April 7 to approve a balanced budget for fiscal 2004. Last month, Ehrlich proposed a $22.8 billion budget that relies heavily on one-time accounting maneuvers and slot machine revenue to close the gap. It would still leave a $700 million hole in the next budget that would have to be addressed when lawmakers return in 2004.
Ehrlich's budget has drawn sharp criticism from Democrats, who control the General Assembly. Until now, however, Democratic leaders had yet to shape a clear alternative. But a consensus appears to be emerging in both chambers to shape a budget without slot machine revenue, to raise some taxes and to cut far deeper into state spending than Ehrlich intended.
The process has been particularly messy in the House, where Busch has been speaker for less than two months. At first, House leaders vowed to lay out an array of tax options, including increases in the sales and income taxes. They backpedaled after that plan drew fire from Senate President Thomas V. Mike Miller Jr. (D-Prince George's), state Democratic Party Chairman Isiah Leggett and Ehrlich, who criticized the "tax and spend" policies of the General Assembly.
Now Busch has a new plan: to "educate" every member of the House about a variety of tax options -- including such unpopular proposals as taxing admissions to major sporting events and raising the sales tax -- even though Busch does not consider them to be realistic. That process began yesterday with a sparsely attended briefing in the House Ways and Means Committee.
At the same time, House leaders are working to prepare a more likely tax package focused on closing corporate loopholes, which they will introduce in the next few weeks. At the top of list, Busch said, are proposals that would:
* Prohibit companies that operate in Maryland from dodging state income taxes by registering in Delaware, raising as much as $100 million.
* Make HMOs subject to a 2 percent tax on insurance premiums now charged to other insurers, raising as much as $40 million a year.
* Raise corporate filing fees from $100 to $250 a year, which would yield about $45 million annually.
* Require companies that sell property to pay real estate transfer taxes. Currently, companies avoid the tax by creating a corporate entity to control the property and then transfering interest in that entity to the buyer. Closing the loophole would produce an estimated $10 million a year.
The last proposal has passed the House several times but died in the Senate. This year, however, Miller is sponsoring the bill himself, dramatically improving its chances.
In addition to new revenue, Busch said, House leaders are looking for $200 million in cuts. At the top of the list, he said, are proposals to reclaim about $100 million that normally would be distributed to the counties and a plan to eliminate free tuition for employees of state colleges and universities.