Assembly tightens college plan tax break

Other legislative action benefits BGE, Pepco, Verizon and Maximus

April 10, 2002|By Eileen Ambrose and Michael Dresser | Eileen Ambrose and Michael Dresser,SUN STAFF

State residents who were able to take advantage of a loophole in Maryland's college savings plan and get a tax deduction 10 times the amount originally intended were among the losers in the just-completed session of the Maryland General Assembly.

Others that did not fare well in the 90-day session that ended at midnight Monday included small businesses that compete against big utilities.

However, telephone giant Verizon and the company that operates Baltimore's child support enforcement program saw legislation that would benefit them pass.

The Assembly revisited Maryland's new college savings plan after some legislators angrily complained that generous tax deductions were turning the plan into a tax shelter for the wealthy.

The Maryland College Investment Plan, launched in December, allows people to save for college in 10 investment accounts managed by T. Rowe Price Associates in Baltimore.

The law creating the plan said residents each year could deduct up to $2,500 of their contributions to each account.

The board overseeing the plan interpreted that to mean a taxpayer could put $2,500 in each of the 10 accounts for one child and get a $25,000 income tax deduction for the year. That interpretation is estimated to have cost the state more than $2 million in lost tax revenue.

Under new legislation to clarify the legislature's intent, a taxpayer would be able to deduct up to $2,500 in plan contributions per child each year. Two parents each could contribute $2,500 for a child, and each get a $2,500 deduction.

But the legislation would also make Maryland the only state that would extend the tax deduction to Marylanders contributing to other states' college savings plans, a move critics say can jeopardize Maryland's plan.

Sen. Barbara A. Hoffman, a Baltimore Democrat and a sponsor of the legislation, defended the measure.

"The whole issue for us ... was to help Maryland kids go to college by helping their parents to find tools to save or invest," she said.

Hoffman said the tax break for out-of-state plans likely won't hurt Maryland's plan because most parents here will stick with their home-state plan.

Del. John R. Leopold, an Anne Arundel Republican, said he will ask the governor to veto the legislation because the tax break for out-of-state plans could drain dollars from Maryland's plan and weaken it.

"By doing this, we are no longer making Maryland unique," he said. Contributors "can get the same tax break anywhere in the country."

Price also weighed in. In a letter to legislators, Price's chief legal counsel, Henry H. Hopkins, said the legislation "will decrease contributions into the Maryland College Investment Plan, thereby diminishing the economies of scale. Such a change to the current structure will be detrimental to the plan and jeopardize its viability."

Other legislative winners:

BGE and Pepco survived a scare as a bill that would have prevented them from using their trademarks for their ventures in heating and air-conditioning, plumbing and home improvement perished on the last night of the session.

The legislation had passed the Senate and House, but the two chambers could not agree on a single version. It was a defeat for small companies that contended the utilities' use of their well-known brand names gave them an unfair advantage.

Verizon managed to kill a series of bills introduced by Del. Joan F. Stern to loosen the company's grip on the state's local telephone market.

However, the Montgomery County Democrat did win passage of a bill important to Verizon's aspiring competitors: one that sets a 180-day deadline for the Maryland Public Service Commission to resolve carriers' complaints against each other.

Maximus Inc., the company that operates the child support enforcement system in Baltimore, won a legislative victory as the Assembly passed a measure extending a pilot privatization program by three years.

The victory could be short-lived because it faces a likely veto by Gov. Parris N. Glendening, who wants to return the work to state employees.

The company protected itself by persuading lawmakers to write language into the budget requiring that child support enforcement money in Baltimore be spent only through a private contractor - a provision that would let lawmakers reconsider the issue under a new governor next year.

Hanging over Maximus is a criminal investigation by the attorney general's office into allegations by Teresa L. Kaiser, the state's child support enforcement chief, of manipulation of data.

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