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O'Malley's risks not over

The Baltimore Sun

Gov. Martin O'Malley took a huge risk this fall, calling leery legislators back to Annapolis to consider a package of tax increases, spending cuts and expanded gambling.

He won big, securing passage of the most ambitious set of legislation a Maryland governor has attempted in years. He and the Democratic leaders of the General Assembly were all smiles yesterday as he signed bills aimed at closing a projected $1.7 billion budget shortfall, expanding health care and establishing the framework of a slots program, should voters legalize it next year.

"It was hard to ask people to do more, but it would have been irresponsible to not ask the people of our state to choose to make progress," O'Malley said.

The 44-year-old Democratic governor laid to rest all doubt that he could get his way in Annapolis, but the question that will determine his future might be whether his big win is a pyrrhic victory. Republicans are itching to talk to voters about O'Malley's tax increases, and their former governor, Republican Robert L. Ehrlich Jr., is already using his public platform to criticize his successor.

O'Malley now must hope he can win a second huge bet - that when voters return to the polls in 2010, they will remember his accomplishments and not their lighter pocketbooks.

"The governor worked very hard and risked a lot of political capital," said Senate President Thomas V. Mike Miller, a Southern Maryland Democrat. "His numbers are going to drop initially, but when people take a harder look ... his numbers will rise again. The state is going to be very well positioned for the next few years."

Some Democratic politicians have never recovered from criticism of their tax records, but O'Malley aides and others have long pointed to the example of former Virginia Gov. Mark Warner, who campaigned successfully for a huge package of tax increases and spending cuts to fix that state's budget problems. He wound up even more popular than he was before.

Republicans are betting the reaction to O'Malley's plan will be quite different.

"The governor claims a short-term political victory, but I think when he starts going outside State Circle there is going to be an awful lot of negative feedback toward him," said Senate Minority Leader David Brinkley, a Frederick County Republican.

Indeed, it would be difficult to tag anyone else with the credit or the blame for the results of the special legislative session that ended early yesterday morning.

O'Malley developed the plan himself in consultation with top advisers, took it to state residents and called the special session without being certain that lawmakers would pass his proposals.

Miller and House Speaker Michael E. Busch, an Anne Arundel County Democrat, were crucial in rounding up the votes in their chambers. But O'Malley lobbied extensively behind the scenes.

"He could have failed and failed greatly," said Miller, who characterized the governor's plan as the most ambitious agenda he has seen in a career that spans seven governors. "Instead, he achieved and achieved greatly."

But whether voters will see it that way is another question.

O'Malley said yesterday that action was necessary to maintain Maryland's quality of life and that he tried to cushion the impact on working families.

That doesn't mean people are happy about it. Legislators say they got thousands of calls and e-mails from constituents - some of them quite nasty - complaining about the tax increases and promising electoral retribution.

"Right now there is a significant part of the population that is upset just with taxes in general and second with what seems to be a very awkward process to get to that conclusion," said Greater Baltimore Committee President and Chief Executive Officer Donald C. Fry, a former Democratic legislator from Harford County.

"But the elections are three years off, and the governor and legislators will have a chance to show what they've done."

Del. Christopher B. Shank, the minority whip from Western Maryland, said Republicans will be reminding voters of the tax increases up until the 2010 election. He said it's hard to know whether they will still be a potent issue then - the answer, he said, will depend on the state of the economy, the national political mood and a dozen other factors.

But the constitutional amendment proposal to authorize slot machine gambling on the November 2008 ballot will provide an early test for O'Malley, Shank said.

"Particularly inside the Democratic Party, all sorts of consternation is bubbling to the surface as a result of this," he said. "Clearly, Comptroller [Peter] Franchot is going to be involved in the process, and who knows what role Governor Ehrlich will play."

Indeed, O'Malley could find himself buffeted from both ends of the political spectrum. Ehrlich did not directly criticize O'Malley in an appearance on WMAR-TV last night. But he said Democrats did nothing but tax and spend in this special session and are not likely to stop.

"If you are a service provider in the state of Maryland, look out, because now they have breached that wall," Ehrlich said, referring to the extension of the sales tax to computer services.

Franchot, a Democrat, said yesterday that he will be active in the "David-versus-Goliath" battle over slot machines, which he opposes.

Though he and O'Malley are from the same party, Franchot remains sharply critical of the special session.

"I've traveled all over the state in the last three weeks, and it's just a universal opinion from Republicans and Democrats that the process of the special session was deeply flawed," Franchot said, pointing to the inclusion of the tax on computer services without a full public hearing.

But on the day after the special session, O'Malley still had standing by his side the same coalition of supporters who helped him win in 2006.

Despite cuts to education funding, Maryland State Teachers Association President Clara Floyd issued a statement yesterday afternoon praising O'Malley for his efforts to pass a "comprehensive and fair revenue package."

Although O'Malley pushed for a sales tax increase and legalizing slot machine gambling, two revenue sources opposed by many in the political left, Progressive Maryland Director Sean Dobson proclaimed the session "a double win for blue-collar families, offering more effective public services and fairer taxes as well." He praised, for example, the $800 increase in the individual exemption for taxpayers earning up to $150,000 a year.

Baltimore County Executive James T. Smith Jr., whose aid in 2006 was crucial to O'Malley's victory, said people will recognize that the combination of cuts and new revenues the governor proposed and the legislature passed were the responsible thing to do.

"This is a pretty balanced approach to a serious problem," Smith said. "When the dust settles and the results can be framed in an understandable way, that's going to be recognized by the public."

andy.green@baltsun.com

Sun reporter James Drew contributed to this article.

KEY SPECIAL SESSION ACTION

SLOTS

WHAT GOV. O'MALLEY PROPOSED Proposed a November 2008 referendum on a constitutional amendment to allow up to 15,000 machines at five locations - one each in Anne Arundel, Allegany, Cecil and Worcester counties and in Baltimore City.

WHAT THE LEGISLATURE PASSED

Slightly increased the take for slots operators from 30 percent to 33 percent but otherwise passed the governor's proposal largely intact.

INCOME TAX

WHAT GOV. O'MALLEY PROPOSED

Proposed new brackets that would have resulted in savings for individuals with taxable incomes under $157,000 and couples with taxable incomes under $214,000. He proposed a new 6 percent bracket for income greater than $150,000 for individuals and $200,000 for couples, and a 6.5 percent bracket for all income over $500,000 a year. Currently, all taxpayers qualify for the top bracket of 4.75 percent, which applies to all taxable income over $3,000.

WHAT THE LEGISLATURE PASSED

Left the rate at 4.75 percent for individuals making less than $150,000 a year and couples making less than $200,000. The rate will increase to 5 percent on taxable income above $150,000 a year for individuals and $200,000 for couples; 5.25 percent on taxable income greater than $300,000 a year for individuals, and $350,000 a year for couples; and 5.5 percent for all income above $500,000 a year. Also, the individual exemption for taxpayers earning up to $150,000 a year would increase to $800. Others would receive the current exemption of $2,400 or less.

SALES TAX

WHAT GOV. O'MALLEY PROPOSED

Proposed increasing the rate from 5 percent to 6 percent and extending the levy to cover real estate management, health club memberships, massage therapy and tanning.

WHAT THE LEGISLATURE PASSED

Approved the increase in the rate but scrapped the services in O'Malley's plan and taxed computer services instead.

TITLING TAX

WHAT GOV. O'MALLEY PROPOSED

Proposed increasing the vehicle titling tax rate from 5 percent to 6 percent, with the money dedicated to transportation.

WHAT THE LEGISLATURE PASSED

Adopted the increase but exempted the value of a trade-in. The legislature also increased the car titling fee from $23 to $50.

CORPORATE TAXES

WHAT GOV. O'MALLEY PROPOSED

Proposed increasing the rate from 7 percent to 8 percent and splitting the proceeds between transportation and higher education. He pushed for "combined reporting," a tax law change that proponents say would prevent corporations from hiding profits in other states but which business groups say is onerous to administer. O'Malley also proposed closing a tax loophole in which companies were able to sell real estate without paying the transfer tax.

WHAT THE LEGISLATURE PASSED

Increased the rate to 8.25 percent and split the proceeds between the general fund and higher education. Approved a bill to study "combined reporting" and other alternative methods of calculating corporate taxes. Adopted the transfer tax loophole-closing measure.

TOBACCO TAX

WHAT GOV. O'MALLEY PROPOSED

Proposed doubling the tax to $2 a pack.

WHAT THE LEGISLATURE PASSED

Approved the increase.

PROPERTY TAX

WHAT GOV. O'MALLEY PROPOSED

Proposed reducing the rate by 3 cents per $100 in assessed value over three years.

WHAT THE LEGISLATURE PASSED

Rejected the tax cut.

HEALTH CARE

WHAT GOV. O'MALLEY PROPOSED

Proposed legislation to provide coverage to more than 100,000 when fully implemented in five years. The bill would expand eligibility for Medicaid, the health insurance program for the poor, and extend subsidies to small businesses.

WHAT THE LEGISLATURE PASSED

Adopted his plan with few changes.

CHESAPEAKE BAY CLEANUP

WHAT GOV. O'MALLEY PROPOSED

Said he wanted to increase spending on the environment but did not include a specific proposal in his legislative package.

WHAT THE LEGISLATURE PASSED

Set aside $50 million for Chesapeake Bay cleanup, with the revenues coming from existing sources and vehicle titling taxes.

TRANSPORTATION

WHAT GOV. O'MALLEY PROPOSED

Proposed increasing transportation funding by about $400 million a year through funding from the corporate income tax and vehicle titling tax. He also pushed for annual gas tax increases based on inflation. The annual increases were expected to be less than a penny per gallon.

WHAT THE LEGISLATURE PASSED

Approved about $400 million a year for transportation but mainly funded it with sales tax revenues. The gas tax proposal failed.

SPENDING CUTS

WHAT GOV. O'MALLEY PROPOSED

Proposed a slowdown in annual education spending increases and a few other cuts totaling $343 million in the next fiscal year. He had already cut $200 million from the budget.

WHAT THE LEGISLATURE PASSED

Directed O'Malley to cut a total of $550 million from next year's projected spending but left up to him how to arrive at that figure.

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