O'Malley hints at budget choices

The Baltimore Sun

Gov. Martin O'Malley outlined a menu of potential revenue-raising measures yesterday that could come close to bridging Maryland's $1.5 billion budget shortfall, including increases in the sales tax and the income tax on high earners.

In a meeting with The Sun's editorial board, the governor made no specific proposals and presented his ideas in theoretical terms. But on a variety of topics - including budget policy, slot machines, transportation, health and crime - he foreshadowed the direction he might take as he approaches the critical second legislative session of his term.

O'Malley also signaled a potentially important change in how the state will deal with criminal offenders. He said the state would base decisions on the level of post-release supervision on their number of arrests instead of just convictions.

During his discussion of budget issues, O'Malley was outspoken in his support of "a progressive income tax" - expressing dissatisfaction with a current system that taxes all income above $3,000 at the same 4.75 percent rate.

"It is a very flat tax," the Democratic governor said. "We've certainly been looking at the pack of progressivity on that score."

O'Malley said that changes to make the tax more progressive - that is, raising it for higher-income individuals - could raise about $100 million to $200 million annually.

Raising the 5 percent sales tax to 6 percent, he said, could bring in $600 million to $700 million. Closing what he considers "loopholes" in Maryland's corporate income tax laws could raise $100 million more, the governor said.

Legalizing slots at racetracks - a move O'Malley has consistently supported - could eventually bring in $400 million to $600 million, he said. The governor noted that it would take several years to reach that level and expressed a preference for directing any slots revenue into capital projects - such as building schools or transportation facilities - rather than depending on them for operating expenses.

While O'Malley did not commit to taking any of these steps, the figures - when added up - come very close to the roughly $1.5 billion the state needs in either spending cuts or revenue increases to balance its budget.

The second year of a governor's term is traditionally regarded as the critical one for enacting the more controversial elements of an administration's policies. As O'Malley noted with amusement, lawmakers prefer to cast tough votes - such as those on taxes - early on.

The governor's musings about taxes drew a chilly response from Senate Minority Leader David Brinkley, a Frederick County Republican.

"Our perspective is that tax increases are not necessary - assuming that they're prepared to cut the rate of increase in government spending," Brinkley said. "He's floating some trial balloons because they're not prepared to say they'll go much further with these reductions in [spending] increases."

During yesterday's wide-ranging conversation, O'Malley expressed a willingness to be "open to compromises and consensus" in his dealings with lawmakers.

The meeting was O'Malley's first with The Sun's editorial board since it endorsed him in the 2006 election. His predecessor, Republican Gov. Robert L. Ehrlich Jr., declined invitations to talk with the board, which recommended his 2002 opponent in terms Ehrlich contended were insulting to his running mate, Michael S. Steele.

In trying to craft a revenue package to deal with the shortfall, O'Malley is caught between two powerful fellow Democrats with very different ideas about the slots issue. Senate President Thomas V. Mike Miller has insisted that slots must be a part of any budget solution. House Speaker Michael E. Busch is personally opposed to slots and has expressed doubt whether a slots bill could garner sufficient support in his chamber.

O'Malley said yesterday that he did not think Busch was "dead set against" slots. The governor appeared to echo Miller in his support for keeping slots exclusively at racetracks while recognizing Busch's concern about "unjust enrichment" of track owners.

"I don't think anybody's looking to make more millionaires from this," O'Malley said.

On other issues, the governor also avoided specifics but gave broad hints of his direction.

On transportation, where he faces a parallel budget challenge because of the depletion of the trust fund that pays for highway and transit projects, O'Malley all but announced an intent to index the state's gas tax to inflation.

"On transportation, we know there needs to be an index on it," he said.

With the state facing an estimated $40 billion in unmet transportation needs, the governor also indicated that a transportation revenue package could include an increase in the current gas tax rate of 23.5 cents a gallon, as well as a higher tax on titling of new vehicles. Both are measures Ehrlich spurned in 2004 when he won passage of a transportation revenue package including a hefty increase in vehicle registration fees.

O'Malley did not mention fees as one of his options.

Brinkley expressed doubt that Republicans would support additional transportation revenue unless it were dedicated to roads.

"If they're going to take that money and put it to mass transit, we're going to be hard-pressed to see anything positive about it," he said.

In response to a question, O'Malley indicated a willingness to consider the sale or long-term lease of some state transportation facilities. Such a move would follow the lead of the city of Chicago and state of Indiana, both of which have raised substantial sums by leasing toll facilities.

The governor said "not a day goes by when people with deep pockets" don't propose deals for such state assets as Baltimore-Washington International Thurgood Marshall Airport, the port of Baltimore or the Maryland Lottery. He said the state may retain professional help to advise it on the merits of various offers.

With the port in particular, the governor said he could see some merits in privatization - but only if the state could assure American ownership. He said a private entity might be able to improve security as well as operate the facility as more of a business.

But he also reiterated his skepticism about public asset sales.

"I'm very glad in retrospect we never sold Baltimore's water system," he said.

On public safety, O'Malley expressed an intent to shift the focus of decision-making on parole and probation matters to an offender's arrest record rather than convictions. In some jurisdictions, especially Baltimore, some people rack up many arrests on drug charges that are later dropped.

New York uses arrests to determine the level of supervision of offenders, O'Malley said.

"Convictions are sort of our trigger mechanism rather than arrests," O'Malley said. "We're changing that diagnostic."

michael.dresser@baltsun.com

POSSIBLE SOLUTIONS

Gov. Martin O'Malley described potential revenues to close a $1.5 billion budget shortfall:

1 percent sales tax increase: $600 million-$700 million

Making state income tax more progressive: $100 million-$200 million

Legalized slot machines: $400 million-$600 million

Closing corporate tax loopholes: $100 million Total: $1.2 billion to $1.6 billion

[Source: Governor's office]

A summary box on Page 1A of yesterday's editions of The Sun incorrectly described a sales tax increase that Gov. Martin O'Malley said could raise $600 million to $700 million in additional revenue. The governor was referring to a theoretical 1-percentage-point, or 20 percent, increase in the state's 5 percent sales tax.The Sun regrets the error.
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