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O'Malley Plan to Fix Budget Gap Includes Higher Sales, Corporate Taxes

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Special Report: Special Session 2007: Budget Crisis

By Kate Prahlad
Capital News Serice
Tuesday, Sept. 18, 2007

ANNAPOLIS - Gov. Martin O'Malley laid out a plan Tuesday that included higher sales and corporate income taxes to close a massive budget shortfall, but no increase in the gas tax, said lawmakers who met with the governor.

Lawmakers also said after the morning meeting that the prospect of a special legislative session to deal with the budget seemed increasingly likely, as the state's estimated budget shortfall has now reached $1.7 billion.

"I think the governor is leaning toward a special session," said Delegate Norman Conway, D-Wicomico. "But he still wants to gain consensus with the speaker and senate president to get it on track."

Under the plan presented to lawmakers Tuesday, the sales tax would rise by one cent and corporate income tax by one percentage point. Personal income taxes could also be raised for higher-income Marylanders, legislators said.

The plan did not include higher gas taxes, even though lawmakers and business leaders -- and O'Malley's own Transportation Department -- repeated calls Tuesday to replenish the state's Transportation Trust Fund.

While lawmakers agree it needs to be replenished, just by how much is still up for debate. O'Malley's aim is to put $300 million into the fund without the gas tax increase, said Senate President Thomas V. Mike Miller Jr., D-Calvert.

But that falls short of what the business community and transportation officials think is necessary to remedy the state's aging infrastructure, on top of a $40 billion backlog in transportation projects.

State Transportation Secretary John Porcari told a joint committee briefing Tuesday afternoon that his department needs an infusion of $400 million to $600 million annually to meet transportation funding needs.

"It's been 15 years since our last major infusion of dollars," Porcari said. "We've got a higher demand, an older system, and decreasing federal funding."

House Speaker Michael Busch, D-Anne Arundel, said the business community has asked for $600 million for transportation projects, a number that he believes is "a little high."

But lawmakers have only themselves to blame when faced with the transportation funding crunch, since they "raid" the fund when general funds dip, said Robert O.C. Worcester, president of Maryland Business for Responsive Government.

"The Transportation Trust Fund has billions in deferred maintenance," Worcester said. "Would the princes in Annapolis agree to the definite payback of funds borrowed from the fund in the future? Would they put that in statute, the return of that money in an acceptable time frame?"

If the gas tax is not tied to inflation, business groups worry that transportation funding needs will have to bet met other ways.

"I don't think it's wise to take anything off the table," said Donald Fry, president and chief executive officer of the Greater Baltimore Committee. "The remaining options would be definitely raising the titling tax or dedicating a portion of the sales tax to the transportation fund."

Miller said the possibility of higher titling taxes was mentioned at the Tuesday morning meeting in the governor's mansion.

All the talk of raising taxes is rankling state Republicans.

"As I understand the discussion going on amongst the principals and powers that be, there's been very little discussion abut spending restraint," said Delegate Anthony J. O'Donnell, R-Calvert.

The Republican caucus in the House presented a plan that allows for a "reasonable 3.5 percent growth" in the state budget without imposing new taxes, he said.

But Sen. James E. DeGrange Sr., D-Anne Arundel, who was at the Tuesday morning meeting with O'Malley, is not impressed with the GOP plan.

"I've seen what the Republican plan is, and there's $900 million that would have to be cut -- but they don't say where," DeGrange said. "When your budget is 80 percent public safety, education and public health, where do you go?"

Copyright 2007 University of Maryland Philip Merrill College of Journalism

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