ANNAPOLIS -- Admitting it had unwittingly "stepped into a hornet's nest," the Senate's budget committee retreated yesterday from a plan to borrow at least $28 million from a state-run automobile insurance fund to balance next year's state budget.
The decision cost Baltimore $20 million in no-strings-attached help with its myriad money problems. At least for now.
Members of the Budget and Taxation Committee were told their plan to borrow money from an $85 million surplus accumulated by the Maryland Automobile Insurance Fund could cost the state its coveted triple-A bond rating, would force every automobile insurance policyholder in the state to pay $13.70 more a year per vehicle to MAIF, could threaten the insurance fund's solvency and -- in any event -- was probably unconstitutional.
If MAIF were to have its own financial problems before the state repaid the loan, Maryland taxpayers could find themselves liable for the company's auto insurance claims, an assistant attorney general warned.
With both state Comptroller Louis L. Goldstein and state Treasurer Lucille Maurer appealing to the committee to back off from the plan, and with the executive director of MAIF stating flatly that the insurance fund's board would never go along with such a scheme, the committee voted unanimously to undo what it had done less than 24 hours before.
By dashing the borrowing plan, the committee did away with the source for the $20 million grant it wished to send to Baltimore. Committee members, however, immediately pledged to find another pot of money to help the beleaguered city.
"Our blind squirrel has found a lot of acorns, and we'll send it out there looking again," said Sen. Laurence Levitan, D-Montgomery, the committee chairman.
The committee decision to borrow the money and repay it with interest over the next four years was at the behest of Senate Minority Leader John A. Cade, R-Anne Arundel. It was a way, he said, of balancing the budget without having to resort to further tax increases.
The Senate committee had agreed to raise $61.1 million by increasing taxes on cigarettes and another $15.6 million by applying the state sales tax to various currently exempt food sales.
But, finding themselves about $8 million short plus needing another $20 million for the city, they turned to MAIF, a quasi-governmental company that primarily insures high-risk drivers who cannot obtain insurance elsewhere. Through premiums and internal cost-cutting, MAIF had built up an $85 million surplus beyond the reserves it normally must set aside to cover claims.
Mr. Cade said he had been assured by committee staff that the state had the authority to borrow from MAIF, and he complained, "This is one instance where we have been stiffed by the staff."
In making its original decision to borrow from MAIF, the Senate panel killed a House budget-balancing plan to eliminate Maryland's tax break on capital gains for taxpayers who earn $50,000 a year or more. Yesterday, Democrats on the House tax-writing and budget committees were chortling at the Senate's "Republican borrow-and-spend plan."
"This is the kind of thing that ran New York City into bankruptcy in the 1970s," said House Appropriations Committee Chairman Charles J. Ryan, D-Prince George's.
Delegate James C. Rosapepe, D-Prince George's, sponsor of the House's capital-gains bill, said of the Senate action: "I think they shifted the tax burden off millionaires and onto working people. It's a classic Republican sort of tax plan."