Schaefer: $700 million tax rise 'Don't be afraid to step out,' governor sqays Scope stuns tax-skittish Assembly

THE BALTIMORE SUN

ANNAPOLIS -- Gov. William Donald Schaefer offered his solution to Maryland's chronic money problems yesterday -- another half-billion dollars in budget cuts and a sweeping, $700 million increase in state taxes and fees.

Mr. Schaefer's program would make it more expensive to drive a car, buy a six-pack of beer or a bottle of wine, smoke a cigarette, repair a car, dry-clean a suit or get a haircut.

Most of the new money is needed, Mr. Schaefer said, to help erase a projected $1.2 billion deficit in fiscal 1993.

The rest, embodied in a nickel-a-gallon increase in the state's gasoline tax, would be used to refuel a stalled highway construction program. It also would give Maryland one of the highest gas taxes in the nation.

"Don't be afraid of new directions," the governor told the tax-skittish lawmakers. "Don't be afraid to step out and make a tough decision."

Mr. Schaefer said he plans to absorb $500 million of the deficit by cutting spending in the fiscal 1993 budget he will submit to the legislature at month's end.

But he said the remaining $700 million gap could be closed only through higher taxes and a relaxation of legally mandated local aid programs.

"We only funded the basics, and we're still $700 million short," he said in a crisply delivered, 38-minute speech from the rostrum of the House of Delegates. "That's not a made-up number: We're $700 million short.

"Without a solution, we're faced with eliminating whole agencies, bankrupting local government, [and] hurting the most vulnerable people," he said.

The governor said he opposed increasing the state's 5 percent sales tax rate because it would disproportionately hurt the poor.

But he called for broad expansion of what is currently taxed and repeal of existing sales tax exemptions, saying: "Special interests must step aside."

While his serious but positive tone drew a favorable response, his broad array of tax initiatives sparked a broad array of reactions.

"Abject horror," responded House Minority Leader Ellen R. Sauerbrey, R-Baltimore County. She called the plan "Linowes with icing," a reference to the failed recommendations last year of Mr. Schaefer's tax restructuring commission, headed by Montgomery County lawyer R. Robert Linowes.

She said government can and should live with the revenue it has, and she characterized Mr. Schaefer's plan as "a one-sided approach."

Some lawmakers seemed stunned by the breadth of the governor's tax package.

Among them was House Speaker R. Clayton Mitchell Jr., D-Kent, who said he was caught off guard despite recent private talks with the governor.

As he has previously, Mr. Mitchell said he wanted to see if spending can be reduced before he even considers tax increases.

Del. Robert Ehrlich Jr., R-Baltimore County, said he disagreed with most of the governor's proposals but called the plan "a good political approach."

"You throw an awful lot on the wall and see what sticks," he said.

Sen. Laurence Levitan, the Budget and Taxation Committee chairman, said his own broad tax increase plan looked modest compared to Mr. Schaefer's.

The Montgomery County Democrat said he would prefer an increase in the sales tax rate, as well as an expansion of the base. That, he said, could be more helpful in eliminating a residual $225 million deficit in this year's budget.

To get next year's budget in balance, Mr. Schaefer called for changes in the laws that require the state to send to Baltimore and the 23 counties $240 million in aid through property tax grants, shared alcohol tax revenues and subsidies for "resident state trooper" programs in rural counties.

But he said he would not touch the biggest state aid program of all -- aid for public schools -- or the $184.4 million increase in so-called APEX education funding scheduled for 1993.

In exchange for cutting other local aid programs, the governor said he wants to let subdivisions raise their maximum piggyback income tax rates from 50 percent to 60 percent of state income tax. He also proposed redistributing 5 percent of the first 50 percent to jurisdictions where the money is earned, rather than to where the taxpayer lives.

That change in basic tax policy is designed to help financially strapped Baltimore, and it immediately created controversy.

Senate President Thomas V. Mike Miller Jr., D-Prince George's, derisively referred to it as "a commuter tax" and said he was opposed.

"Apparently the people on the governor's staff don't understand the geography of the state of Maryland," he said, referring to his belief that if Maryland adopts a commuter tax for the Baltimore area, Congress may allow Washington, D.C., to enact a similar tax on city workers who live in the neighboring Maryland and Virginia suburbs.

Del. Elijah E. Cummings, D-Baltimore, said he, too, was concerned that the place-of-earnings tax would aggravate and alienate his legislative colleagues from neighboring Baltimore County.

Many of them are already angry with the city for merging legislative districts in the governor's new redistricting plan.

"I don't want to throw another monkey wrench into those relationships," Mr. Cummings said.

But Sen. John A. Pica Jr., D-Baltimore, chairman of the city delegation, called the governor's plan "a good package for the city. It was a bold and courageous statement. [The governor] embraced the cornerstone of our position."

In addition to the shift in piggyback taxes toward the city, Mr. Schaefer also proposed that the Baltimore Zoo be turned into a state park, the latest in a series of moves to shift financial responsibility for costly city institutions to the state.

After the speech, the governor's aides emphasized its cooperative tone. They said Mr. Schaefer wanted to place his ideas on the table, but insisted that the often-stubborn governor was willing to negotiate a final budget and tax package.

As evidence, they pointed to the governor's statement that he would like to make Maryland's income tax more progressive by shifting more of the burden to wealthier taxpayers. But they said he intentionally omitted specifics, preferring to hash things out with lawmakers.

The governor also spoke briefly about other initiatives.

He said he wants to combine the Maryland Stadium Authority and the Convention Center Authority. That, his aides explained, would reduce overhead and take advantage of the Stadium Authority's construction experience to oversee a proposed expansion of the city's Convention Center.

Mr. Schaefer offered two proposals to reduce real estate closing costs in Maryland, which are among the highest in the nation.

He suggested that payment of recordation taxes be shifted from buyers to sellers, to help homebuyers, and that buyers be allowed to pay property taxes on a semiannual basis, instead of up front at settlement.

The governor also reiterated his plans to seek a ban on certain assault weapons and ways to keep loaded guns away from children. He said he will propose a domestic violence bill to help people who have been abused by their mates.

The Governor's proposlas

Raise $125 million by increasing Maryland's gasoline tax by a nickel to 23.5 cents.

Raise $40 million by increasing "user fees" for various state services and raise fees for regulatory activities to make them more self-supporting. Vehicle registration woulod be raised $8 to finance the MedEvac helicopter program.

Raise $340 million by expanding the state sales tax but leaving the rate at the current 5 percent. Tax would apply to many services, including auto repairs, cable television, car phones, haircuts and hair styling, dry cleaning and data processing.

Raise $35 million by repealing certain current sales tax exemptions, such as ready-to-eat salads sold in grocery stores, food sales by college and hospital cafeterias, precious coins and diet dog food.

Raise $100 million by increasing the state's excise tax on cigarettes by 25 cents to 41 cents a pack. Earmark $25 million for cancer research and treatment.

Raise $30 million by doubling the state's tax rates on alcohol, to $3 a gallon for beer. Use one-third of the revenue to restore alcohol and drug treatment programs cut in a previous round of spending reductions.

Make the state income tax more progressive with higher rates for wealthier taxpayers.

Allow Baltimore and the 23 counties to increase their maximum piggyback income tax from 50 percent to 60 percent to offset cuts in state aid to local governments. Five percent of the first 50 percent would be redistributed based on where the income was earned, not where the taxpayer lives, a change that would primarily benefit Baltimore.

Raise $25 million by increasing state's corporate income tax rate from 7 percent to 7.5 percent.

SOURCE: Budget advisers to Gov. William Donald Schaefer/SUN GRAPHICS/JOSEPH HUTCHINSON

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