Donald Fry: Budget proposal will be first big 2011 defining moment for lawmakers

By Donald Fry

As lawmakers converged on Annapolis last week for the 2011 General Assembly session, there was plenty of speculation about what to expect from state lawmakers this session. Based on comments by top leaders from the House and Senate last week, there is total agreement on a couple of things: this session will be dominated by spending cuts and potentially impacted by some revenue-raising initiatives.

But House Speaker Michael Busch, Senate President Mike Miller and everyone else under the State House dome voiced the same caveat about potential details of budget cutting and revenue increases — we’ll have to see what the governor proposes in his budget.

The governor’s budget proposal, due to be released today, will mark the first big defining moment in the 2011 session.

In media interviews and public appearances, Governor Martin O’Malley stuck to his campaign pledge that his budget will not include any tax increases. He will balance the budget entirely through spending cuts, efficiencies, and fund transfers, he said.

The governor implied that elements of the budget that have, for the most part, previously been protected from significant reductions will no longer remain immune to the budget-cutting process. Public education, health and public safety account for 83 percent of the budget, Gov. O’Malley told a radio interviewer on the first day of the session. For example, Thornton-based increases in state funding for K-12 education will likely take a hit, Gov. O’Malley hinted. Finding another $150 million for education funding increases this year “does not square with reality,” he said.

Both House Speaker Busch and Senate President Miller have said they are willing to vote for new revenues, depending on what Gov. O’Malley’s budget looks like. Here are a few key legislative issues impacting business climate that have been mentioned in Annapolis during the first eight days of the session.

Transportation funding. A concept for a 10-cent per-gallon gas tax increase is being floated by some legislative leaders. While business advocates, myself included, have consistently supported a gas tax increase as a way to begin strengthening the state’s depleted Transportation Trust Fund, one of the gas tax increase concepts being touted in Annapolis is not even close to what we had in mind.

The concept would increase the per-gallon gas tax rate, but would also take away the portion of sales tax revenue that currently goes to transportation. The combination would raise an estimated $300 million in new gas tax revenue to the Transportation Trust Fund, but would divert an estimated $212 million in existing Transportation Trust Fund revenues (the sales tax portion) to the state’s General Fund. The net result would be that the 10-cent gas tax increase would raise only 2.8 cents worth of new revenue – $88 million – dedicated to transportation.

This would amount a “back door” method to channel more revenue into the General Fund, which underscores the need to enact a “firewall” on transportation funding to restore the concept of “trust” in our state’s Transportation Trust Fund.

Other taxes. Although the Maryland Business Tax Reform Commission in December issued a report recommending against passing a corporate tax increase in the form of combined reporting legislation, there are likely to be some combined reporting bills proposed anyway. But most in Annapolis feel that they are unlikely to gain much traction.

On the other hand, there could be a strong effort to bring back Maryland’s recently expired “millionaire’s tax” for at least a few years. This is something that business advocates will have to watch closely.

Investing in business growth. Governor O’Malley has hinted that his budget will include extensions of state tax credits for investments in bioscience and in research and development. Currently the state is allocating $8 million in tax credits for investing in Maryland bioscience companies and $6 million for research and development. However, even if the tax credits are included in the governor’s budget, they must be vigorously defended by the business community. These tax credits and other business development incentives tend to regularly come under fire from lawmakers who view them more as pure expenses rather than highly effective incentives for business growth.

Meanwhile, the state’s Department of Business and Economic Development is proposing legislation for a premium tax credit program, called Invest Maryland, that is aimed at generating $100 million in private investment to replenish the Maryland Venture Fund. The tax credit would be issued to participating insurance companies that contribute capital to the fund.

The proposal is intended to strengthening Maryland’s resources for nurturing growth in our state’s biotech, information technology, and clean-technology industries. It deserves aggressive support from the business community.

Developing strategic, effective and leveraged state investments in business growth is one of the eight core pillars for strengthening Maryland’s business environment that were identified from a consensus of Maryland’s business leaders and economic development experts that was compiled by the Greater Baltimore Committee.

The Invest Maryland proposal is precisely the kind of tactical initiative that business leaders had in mind for nurturing business growth and job creation, which must be the Number One priority for our elected leaders as our state emerges from a debilitating recession.

A strong, growing economy is ultimately what will drive our state government’s post-recession revenue, resources and ability to deliver value and services to Marylanders.

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