Md. Senate budget plan would double-tax cigarettes


ANNAPOLIS -- The Senate's budget committee voted yesterday to balance next year's budget by levying a double tax on cigarettes, taxing food served in hospital and college cafeterias and borrowing money from a state-run automobile insurance company.

While it was at it, the Budget and Taxation Committee also moved up by one month the effective date of the two tax increases as part of an effort to cover a nearly $9 million current-year deficit in the Department of Human Resources' budget. Because of that deficit, Gov. William Donald Schaefer had threatened to slash welfare benefits and the state's foster care program.

The budget and tax bills will go to the full Senate next week.

In completing work on the governor's $11.6 billion spending plan for the year beginning July 1, the Senate committee adopted several approaches that differ from the budget version passed by the House of Delegates. Chief among them: The Senate panel killed, 8-5, the House's plan to raise $37 million by eliminating Maryland's tax preference for capital gains for most taxpayers.

The Senate committee also made approximately $73 million in increased aid for local public education contingent on passage of its tax proposals. The House version of the budget tied a long list of local aid programs -- including school aid, fire and police protection, and property tax relief -- to the House cigarette and capital gains tax proposals.

Those differences will be watched closely as state legislators strive to reconcile their versions and present the governor with a balanced budget before an April 1 deadline.

The budget approved yesterday by the Senate's committee would raise $59 million by increasing the taxes on cigarettes. While the House only slapped an additional 5 percent sales tax on cigarettes, the Senate committee went a step further by adding a nickel to the current 13-cents-a-pack excise tax.

By closing exemptions from the state sales tax for various food services, the Senate committee would raise another $14 million. Differing from the House version, the Senate committee's decision extends the sales tax to include food bought at university and hospital cafeterias and carry-out restaurants.

Even with these tax increases, the Senate's committee remained far short of balancing the budget. Two options were considered: accepting the House's capital gains idea, or borrowing money from the Maryland Automobile Insurance Fund, a state-run company that primarily insures high-risk drivers who cannot obtain insurance elsewhere.

The committee rejected the capital gains idea and turned to the MAIF proposal, offered by Senate Minority Leader John A. Cade, R-Anne Arundel. Senator Cade originally suggested borrowing $60 million from MAIF's recently accumulated $85 million surplus to balance the budget and direct money toward financially beleaguered Baltimore.

The committee ultimately agreed to borrow $32 million from MAIF and dedicate $20 million for Baltimore. Under the committee's plan, the state would have to repay the money to MAIF plus interest over the next four years.

By making the new taxes on cigarettes and food services go into effect June 1 rather than July 1, the state would pick up an estimated $5.6 million that could be used to close the 1991 Human Resources' deficit.

Exactly how the balance of the $9 million deficit this year will be covered will depend in part on Governor Schaefer.

The Senate committee agreed to borrow the balance of the money from MAIF, but in the current year the governor would have to agree to appropriate it.

To emphasize their displeasure over the proposed welfare cuts, the committee also deleted $300,000 from the salaries of the administration's senior officials next year.

"Everybody at the executive level bleeds a little bit, not a lot, just a minor wound. Maybe next year, they'll remember it," said Senator Cade, who proposed the executive salary reduction.

In reducing expenditures, the budgets approved by the Senate committee and by the House differed by only about $500,000, but the two houses sliced their millions of dollars and hundreds of jobs from different departments and programs.

Two of the areas where the Senate cut deeper into spending than the House were in higher education and programs designed to stimulate development. However, the House made deeper reductions in the state's parkland acquisition program.

By far, the most debated part of the Senate panel's budget was the MAIF proposal offered by Mr. Cade.

Several committee members criticized the plan, partly because it would balance the budget with borrowed money, and partly because the money would be borrowed from an insurance company that could need the money in the future to cover its liabilities.

Sen. William A. Amoss, D-Harford, said he understood the need to help Baltimore, but did not support the notion of borrowing millions of dollars to do it. "This is absolutely borrowing. It seems to be a quick way out for the federal government, and it seems to be a quick way out tonight," he said. "This you're going to have to pay back."

But Senator Cade said such talk against borrowing overlooked what had occurred in the budget process. "What we're trying to do is get through one year, and I, for one, don't want to hear all these words about how this isn't fiscally responsible," he said. "After all that is in this budget, you've got to be putting me on."

Sen. Barbara A. Hoffman, D-Baltimore, implored her colleagues to support borrowing from MAIF. The House, she said, had done virtually nothing in the way of providing additional aid to the city, and any major tax restructuring was at least a year away.

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