The Maryland General Assembly’s special session adjourned November 19 after passing a package of legislation to address the state’s deficit, increase transportation funding, expand health care access, and authorize slots in Maryland, subject to a voter referendum in November 2008.
Legislation passed will raise more than $1.3 billion in new revenues in FY09, including $400 million in new transportation funding. Lawmakers are seeking more than $500 million in savings to be accomplished by the O’Malley administration in the next budget.
Regarding the GBC’s top priority — increasing transportation funding — the governor and legislators recognized the need to address a more than $40 billion backlog of unfunded state transportation projects, but were unable to fully resolve the transportation funding issue. “Lawmakers clearly grasped our message about the importance of funding transportation, but the final results are mixed,” GBC President and CEO Donald C. Fry reported to members.
“The General Assembly delivered slightly more transportation funding than the governor’s original proposal,” Fry said. “But the average $452 million per year in new revenue that was enacted falls short of the minimum $600 million that the state Transportation Fund needs annually to address its backlog of highway, transit, port and airport projects planned but not yet funded for construction.”
Lawmakers also strengthened funding for higher education — another important GBC priority, Fry noted.
Following are key provisions of legislation passed that relate to GBC priorities and other business issues:
Transportation funding. Legislation passed in the special session will increase revenue to the state’s Transportation Trust Fund by an estimated $421 million in the next fiscal year (FY09). Annual new revenue to the fund is estimated to increase to approximately $484 million in FY12.
Lawmakers also raised the transportation bonding cap from $2 billion to $2.6 billion, which may allow for some of the funding gap to be closed through bond issues. The GBC and state transportation officials are reviewing the details of transportation funding legislation to develop a specific sense of the annual levels of funding that might be derived through a combination of new revenue and bond issues.
The largest portions of the increased transportation revenue comes from the increases in the state sales tax, vehicle excise tax, and the title certificate fee.
Higher Education. Approximately $55.5 million in new revenues from the corporate income tax increase, will be channeled to a new Higher Education Investment Fund in FY09. The fund will also receive an estimated $16.2 million in new revenues in the current fiscal year (FY08) and more than $56 million annually in FY10 and beyond, subject to General Assembly review for affordablility. This equates to approximately 40 percent of estimated revenues from the corporate tax increase. The remainder will go to the General Fund.
Income taxes. Income tax rates were increased from the current top rate of 4.75 percent for individuals with taxable incomes of more than $150,000 and couples with combined incomes of more than $200,000. New higher-bracket rates enacted by the special session are:
- 5 percent for individuals making more than $150,000 and couples making more than $200,000;
- 5.25 percent for individuals making more than $300,000 and couple making more than $350,000;
- 5.5 percent for individuals and couples making more than $500,000.
The higher-bracket rates are a full percentage point below the governor’s original proposal, which the GBC did not support.
Corporate income tax. The corporate income tax is raised from 7 percent to 8.25, which is more than initial 8 percent proposals by the governor and the Senate, but less than the House’s proposed 8.75 percent, which the GBC opposed. The GBC had supported the governor’s proposed corporate tax increase as a way to support our request for increased transportation and higher education funding.
Sales tax. The sales tax will be raised from 5 percent to 6 percent. The legislation calls for 6.5 percent of total sales tax revenues to go to the Transportation Trust Fund, which equates to approximately 40 percent of the sales tax increase. Also, the sales tax will be expanded to computer services, which includes computer facilities management and operation, computer system planning and design, and data processing storage and recovery. The legislation specifies that the expanded sales tax does not apply to internet access, computer training, payroll management, and other computer-intensive professional services.
Combined reporting. The special session’s legislative package does not include a combined reporting provision. However, lawmakers created a Maryland Business Tax and Reform Commission to study corporate tax laws, which indicates that the issue of combined reporting will likely surface again. The GBC opposed the combined reporting provision.
Controlling interest. In the sale of controlling interest of companies for which real estate comprises 80 percent or more of total value, the real estate will be subject to recordation and transfer taxes beginning July 1, 2008.
Slots. The proposed constitutional amendment that passed authorizes the General Assembly to pass expanded gaming subject to restrictions, including no more than 15,000 slots terminals at the five locations specified in the bill — Anne Arundel County (Laurel Park), Baltimore City, at Gateway South; Worcester County (Ocean Downs), Cecil County, within two miles of I-95; and Rocky Gap State Park in Allegany County. The GBC supported most provisions of the slots proposals.
Health care access. Medicaid eligibility will be extended to those within 116 percent of the poverty guidelines. However, levels of funding would be contingent on whether the state meets certain revenue targets. The legislation would provide subsidies for health care plan premiums to small businesses that implement wellness programs and meet other requirements.
More details on legislation passed in the special session