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State deficit tops Ehrlich's agenda

In Robert L. Ehrlich Jr., the first Republican governor in Maryland since 1966, many business leaders believe they have one of their strongest allies in Annapolis. But as he begins his second General Assembly session today as governor, Ehrlich is pushing one of the leanest business agendas in years, observers say.

He has spent the bulk of his time advocating legalized slot machines to fill a budget deficit and finance education.

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"The governor appears to have no legislative agenda other than slots this year," said Donald F. Norris, a public policy professor at the University of Maryland, Baltimore County. "That's how it was last year, and nothing else got done."

Ehrlich's most recent predecessors, Democrats Parris N. Glendening and William Donald Schaefer, entered their second year as governors with much lengthier business agendas. Both eventually saw their relations sour with the business community to various degrees. But observers point out that two things have changed that both enable and require a different approach for Ehrlich: The state's so-called business climate has improved and the budget-strapped government has less money to consider cutting taxes or creating many new business incentives.

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"Whatever he's doing, they like," Richard Clinch, director of economic research at the University of Baltimore, said of Ehrlich's relationship with the business community. "This governor has little latitude to propose big new ideas because he has no means for paying for them.

"Saying 'no' to taxes, streamlining government and building transportation infrastructure are really the rallying cries of the business community," Clinch said. "To the extent there are no second-tier items on it, his platform is OK with the business community. He's addressing the fundamental issues."

Ehrlich doesn't face the dissatisfaction of the late 1980s and 1990s when business leaders felt the state was at a disadvantage in competing with Virginia, Pennsylvania and elsewhere because of taxes and licensing red tape, among other issues.

In the most recent survey of state business people conducted by the Maryland Business Research Partnership at the University of Baltimore during the third quarter of last year, the share of respondents who viewed Maryland's business climate favorably was the highest in eight years: 57 percent.

During Glendening's two terms, from 1995 to 2003, the positive business climate reviews were lower, ranging from the upper 30s to 51 percent, even during a technology-fed economic boom that provided millions of dollars for business issues, higher education and the environment. Glendening won funding to enable new football stadiums in Baltimore and outside Washington and passed a tax credit to fuel business employment.

Schaefer, elected in 1986, was considered a business visionary after leading the Inner Harbor renaissance as mayor of Baltimore. He had an aggressive economic agenda as governor that included funding for a new baseball stadium and light-rail transportation. By his second term, however, a national recession led to unpopular tax increases and eroded business support by the time he left the governor's mansion in 1995.

Today, business leaders say Ehrlich has no choice but to deal with the deficit first.

"When education has to be cut, I can't fight for economic development money," said Aris Melissaratos, secretary of the state Department of Business and Economic Development. "Business tends to pale in the face of all that."

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He acknowledged that business incentives are more difficult to sell to lawmakers when 690,000 Maryland residents do not have health insurance and the state's ambitious plan for education is under-funded.

"There are very few major initiatives that don't have a cost," said Donald C. Fry, president of the Greater Baltimore Committee, a civic and business organization. "Obviously, we realize there needs to be some increase in revenue, and gaming seems to be the one most people are favoring over tax increases. But there doesn't seem to be consensus on implementing slots legislation."

While Ehrlich said increases in the state sales tax or other taxes are "off the table," House Speaker Michael E. Busch continues to support a sales tax increase over expanded gambling, putting the governor's priority in jeopardy.

The Maryland Chamber of Commerce supports budget cuts to cover a shortfall and says businesses are already weighed down by the rising costs of workers' compensation, unemployment insurance and medical malpractice liability.

"The top of our list is fiscal responsibility," said Kathleen T. Snyder, president and chief executive of the Maryland Chamber of Commerce. "We believe there still needs to be streamlining of government expenses as an alternative to increasing tax revenue, and we support carefully regulated slot machines in limited location to fund public education."

The chamber unsuccessfully advocated the same position last year, Snyder said.

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Some lawmakers have already questioned another Ehrlich priority that has strong business support: the Intercounty Connector.

Supporters say the proposed 18-mile stretch of highway in suburban Washington linking Interstates 95 and 270 will reduce gridlock and is years overdue. But opponents contend the governor's proposal to finance the project - selling bonds backed by future federal dollars - could greatly inflate debt payments and smother funding for other road projects. The chamber has proposed raising the gasoline tax and motor vehicle fees to help pay for the connector in Montgomery County.

Sen. Thomas M. Middleton, who is chairman of the Finance Committee, said new taxes are not necessarily going to be passed this session, regardless of any funding shortfall or the outcome of the slots debate.

He said revenue can be derived from other sources such as closing so-called corporate tax loopholes, including the collection of taxes from Maryland companies that have created holding companies in Delaware.

As for unemployment insurance - a state fund so depleted that companies will have to pay a surcharge the next two years - and workers' compensation, lawmakers will consider recommendations from task forces and studies on how to limit costs, he said. Middleton said progress can be made on the issues even if the governor shines the spotlight on slots alone.

"If this year is like last year, there will be a limit on his involvement," the Charles County Democrat said of the governor. "But not everything is tied to slots."

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Robert O. C. "Rocky" Worcester, president of Maryland Business for Responsive Government, said his pro-business group remains cognizant that Ehrlich is part of a divided government as a Republican governor working with a Democratic-led legislature.

"It's going to be an explosive session," he said. "When you've got as much partisanship as is evident there, it's understandable that a governor would be very careful and limited in what he puts forth."


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