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Goodbye summer, hello new taxes?

O'Malley: 'We give all sorts of thoughts to all sorts of things'

By Annie Linskey, The Baltimore Sun

8:59 PM EDT, August 19, 2011

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The legislature's special legislative session in October is supposed to be limited and quick. The to-do list includes approving a new congressional district map for the state, and not much else.

But with Maryland facing a projected $1 billion shortfall, budget debates in Washington putting future federal contributions in question and Wall Street rating agencies re-evaluating the state's creditworthiness, Annapolis leaders could add taxes to the agenda.

Asked about the possibility of an October revenue debate, Gov. Martin O'Malley signaled a degree of openness to the idea.

"We give all sorts of thoughts to all sorts of things," he told reporters this week. "It is very, very fluid."

He said he would "have something more to say about that" during his speech Saturday at the Maryland Association of Counties conference in Ocean City.

From a timing perspective, O'Malley and legislative leaders are in a difficult spot. This year's budget includes $9.3 billion in federal money, and the governor will not know how much of it will be in jeopardy until a deficit-reduction committee makes its recommendations to Congress at the end of November. And fall could bring another federal battle, with the federal gasoline tax up for reauthorization in September.

Should Washington take a sizable bite out of state aid — such as cutting Medicaid matching funds or declining to reauthorize the gas tax — Maryland's budget gap could grow much wider.

But state House and Senate leaders say considerable groundwork would be needed before their members get behind new taxes. And so far, they said, nobody from the governor's office is doing it.

"There's been no discussion" of introducing a tax package during the special session, House Speaker Michael E. Busch said. "Before you would plan any of those initiatives, I'd hope he'd tell the presiding officers about it."

O'Malley appeared to make a case for a transportation funding package at a Chamber of Commerce meeting in May. He said he wishes that bridges were "like trees" and "would grow taller and stronger" if left alone. "But it is not true," he told the business leaders, many of whom have pushed for better infrastructure.

Since then, there's been widespread opposition to a package of proposed toll increases intended to fund a widening of Interstate 95, continuing maintenance and to repay loans for the Intercounty Connector.

The Senate Budget and Taxation Committee floated another idea this summer when members went to Annapolis for a briefing on expanding the state's sales tax to include some services, including engineering services, cable television and car repairs.

The package discussed by the committee would have raised $1 billion, enough to plug the state's projected budget gap. But senators were quick to say that the briefing was for informational purposes only.

"There is need for new revenues," said Senate President Thomas V. Mike Miller. But he said he didn't "sense any mood for taxation at this time."

"People are having a hard time finding work," Miller said. "The cost of living continues to rise but wages remain static. … If anything, the special session should focus on jobs. Whatever the governor wants to put forward in terms of job creation, I'm all for that."

Budget experts and political watchers warn that a special session might not be the best venue for a thoughtful change to the state's tax policy.

"Taxes are complicated," said Roy Meyers, a political science professor at the University of Maryland, Baltimore County. "The state is better off if it thinks carefully about how taxes might be changed."

Meyers pointed to the short-lived tax on computer services.

The levy, passed during a special session in 2007, would have raised $200 million annually. But lawmakers repealed the measure a few months later after business groups said it could destroy the state's high-tech industry.

The current business climate is all the more reason to hold off on new taxes, or else design them very carefully, Meyers said.

But even if the special session is tax-free, he noted, the General Assembly will reconvene for its full session in January.

"There are far fewer options for additional cuts," he said. He suggested listening for the word "balance" as code for "new taxes."

It's a word that O'Malley has been using.

In his recent chat with reporters, he gave a broad view of his budget philosophy.

"There are fundamentally two ways to balance a budget," he said. "One is on the expenditure side, one is on the revenue side. What we need is a balanced approach."

annie.linskey@baltsun.com

twitter.com/annielinskey

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