After months of playing chicken with the legislature over new taxes, Gov. William Donald Schaefer has made the first move -- in a big way.
To deal with a looming $1.2 billion budget deficit next year, Schaefer yesterday proposed $700 million in new taxes and $500 million in budget cuts.
"Don't be afraid of new directions," the governor told skittish lawmakers in his State of the State address. "Don't be afraid to step out and make a tough decision."
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.
A nickel-a-gallon increase in the state's gasoline tax would restart Maryland's highway construction program and provide jobs in a recession-battered economy. It also would give Maryland one of the highest gas taxes in the nation.
Schaefer also proposed revamping the state income tax to take a heavier bite from wealthier taxpayers.
While the governor has often turned off legislators with rambling addresses, histrionics and gimmicks, yesterday's appeal was well-scripted and straightforward. Even critics of his proposals were impressed.
"In many ways, it was the best and most substantive speech the governor has given," said Sen. Howard R. Denis, R-Montgomery. "I don't agree with much of what he said, but he exercised leadership. The speech made me think he wants a more businesslike relationship with the General Assembly."
Whether he made any converts in a General Assembly caught between demands for services and opposition to new taxes remains to be seen.
House Speaker R. Clayton Mitchell Jr., D-Eastern Shore, a key player in the budget stakes, said he still wants to see if spending can be cut further before he's willing to consider new taxes.
But Schaefer argued that he has already cut spending to the bone.
He said he plans to absorb $500 million of the deficit by cutting state programs and agencies 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 his 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 for a repeal of existing sales tax exemptions, saying, "Special interests must step aside."
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.
While he would take away direct state aid, the governor proposed giving subdivisions the chance to replace it themselves by letting them raise 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. This basic change in 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.
Even Del. Elijah E. Cummings, D-City, expressed concern that the place-of-earnings tax would aggravate and alienate his legislative colleagues from neighboring Baltimore County.
But Sen. John A. Pica Jr., D-City, chairman of Baltimore's Senate 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."
Besides the shift in piggyback taxes toward the city, Schaefer 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.
While taxes caught everyone's attention, 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 reduceoverhead and take advantage of the Stadium Authority's construction experience to oversee a proposed expansion of city's Convention Center.
Schaefer also 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 semi-annually, instead of up front at settlement.
The governor also reiterated his plans to seek a ban on certain assault weapons and develop 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.
Del. Robert Ehrlich Jr., R-Balto. Co., said he disagreed with most of the governor's fiscal proposals but called the plan "a good political approach."
"You throw an awful lot on the wall and see what sticks," he said.
The major accomplishment of the speech might have been the psychological breakthrough it provided, said Prince George's County Executive Parris N. Glendening.
"We've had a lot of dancing and maneuvering about who would be the first, the legislature or the governor, to say the word 'taxes.' It may have been harder to get through that barrier than it will be to put the [deficit reduction] package together," he said.
Keys to Schaefer's plan
Here are the main components of Gov. William Donald Schaefer's plan to eliminate a projected $1.2 billion budget deficit in Fiscal Year 1993:
* $655 million in higher taxes, through expansion of the sales tabase, higher taxes on cigarettes, alcoholic beverages and gasoline, and an increase in the corporate income tax.
* $40 million in fees for services, such as an $8 increase in car registration fees to pay for the Med-Evac helicopter program. Other increases would involve health boards, insurance, agriculture, licensing and natural resources.
* $500 million in state agency spending to be cut from the FY 93 budget before it is introduced Jan. 31, including about $100 million in cost-of-living or any other salary increases for state employees.
* $240 million through the relaxation of statutorily mandated local aid programs, including the shared alcohol tax, property tax grants and state subsidies for "resident" state troopers in counties. Those cuts would be offset by permitting local jurisdictions to raise their maximum piggyback income tax rate from 50 to 60 percent.
Schaefer's proposed tax and fee increases
Here are the tax and fee increases Gov. William Donald Schaefer asked the General Assembly to approve yesterday to help balance the Fiscal Year 1993 state budget:
* Expand the state sales tax, but leave the rate at the current 5 percent. Services that would be subject to the tax would include auto repairs, cable television, car phones, haircuts and hair styling, dry cleaning and data processing. The expansion of the sales tax is expected to bring in $340 million.
* Repeal certain current sales tax exemptions, such as ion ready-to-eat salads sold in grocery stores, food sales by college and hospital cafeterias, precious coins and diet dog food. Ending the exemptions is expected to bring in $35 million.
* Increase the state's excise tax on cigarettes from 25 cents to a total of 41 cents a pack. That figure will actually produce additional revenue because the state's 5 percent sales tax is computed on the price of cigarettes plus the excise tax. The cigarette tax increase is expected to raise $100 million, about a quarter of which is to be diverted to cancer research and treatment.
* Double the state's tax rates on liquor, wine and beer, to $3 a gallon for liquor, 80 cents a gallon for wine, and 9 cents a gallon for beer. Higher taxes on alcoholic beverages are expected to raise $30 million, about one-third of which would be used to restore alcohol and drug treatment programs cut in a previous round of spending reductions.
* Increase the state's corporate income tax rate from 7 to 7.5 percent. The increase is expected to raise $25 million.
* Raise "user fees" for various state services and raise fees for regulatory activities to make them more self-supporting. A major component would be an $8 increase in vehicle registration fees to finance the Med-Evac helicopter program. Fee increases are expected to raise at least $40 million.
* Allow Baltimore and the 23 counties to increase their maximum piggyback income tax from 50 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 Maryland's gasoline tax by a nickel, to 23.5 cents. The gas tax increase would raise $125 million.
Source: Budget advisers to Gov. William Donald Schaefer.