Tax rise opposed by state businesses

Chamber says '03 session will be `all about money'

January 10, 2003|By William Patalon III | William Patalon III,SUN STAFF

With a new legislative session under way - and the state looking at its biggest budget deficit in years - lawmakers must slash spending, boost revenue by adding carefully controlled slot machines and avoid new across-the-board taxes on businesses, Maryland business leaders said yesterday.

On day two of the 90-day legislative session, the Maryland Chamber of Commerce outlined its business agenda for 2003.

Maryland's business leaders said they understand that lawmakers and Gov.-elect Robert L. Ehrlich Jr. are in a tight spot because of a fiscal 2004 budget deficit currently pegged at $1.2 billion to $1.7 billion, including the current fiscal year's deficit of nearly $600 million.

Even so, businesses will not allow themselves to be made the easy solution by accepting a large - and disproportionate - tax increase, chamber leaders and other business officials said yesterday at a morning breakfast for lawmakers and business executives.

"At the top of our list is fiscal responsibility," said Kathleen T. Snyder, president and chief executive officer of the Maryland Chamber of Commerce. "This session is going to be all about money. We know that, and you know that."

Economic downturns such as the current one, prolonged because they come on the heels of a long-running boom, often spawn the biggest budget debacles. Rich periods substantially boost government tax receipts, spurring an acceleration of spending, experts say.

When a recession then hits, workers lose their jobs, and investment values plunge, meaning that income and capital gains tax receipts drop precipitously, too.

But elected officials find it politically difficult to cut spending by rolling back, or even eliminating, the programs now in place, experts noted.

Some spending cuts will be needed, said Del. Dereck E. Davis, a Prince George's County Democrat who chairs the state House Economic Matters Committee.

"There are obviously going to be some cuts in spending," Davis said. "There's really no way around it."

According to Snyder, the need for spending cuts is so important that it's "inappropriate" to talk about imposing new taxes, or raising existing ones, until specific cuts are identified.

Short-term targets

Bringing state spending back in line with revenue may actually force the state to revert to the spending levels of 1998 to 2000, Snyder said.

While agreeing that some spending reductions are necessary, making such across-the-board pronouncements to meet short-term targets could ultimately damage Maryland more over the long haul than any short-term deficit would, some lawmakers and business executives say.

State Sen. Thomas M. Middleton, a Charles County Democrat and chairman of the Senate Finance Committee, said that draconian spending targets may hamper the investment needed to nurture such fledgling industries as biotechnology.

Biotechnology won't pay big dividends for several years, he said, but may never pay off if the state doesn't continue to invest in its university systems and needed infrastructure such as industrial and technology parks.

To achieve these successes, Middleton said, he supports spending cuts in some areas and the addition of new but temporary taxes in other areas.

Research Triangle

"Looking at the long-term, we're just starting to look like [we can become] a Research Triangle-type area like North Carolina," Middleton said. "I don't think we can afford to do anything that jeopardizes that."

Despite the budget crunch, the state has to continue to make long-term investments in such areas as work force training and transportation items such as the light-rail and area highways, said Robert J. Lawless, chairman, president and chief executive of McCormick & Co. Inc., the spice maker.

"Patience is truly a virtue during periods of time like this one," Lawless said.

Transportation funding is high on the chamber's legislative agenda, according to the chamber's Snyder.

Long-term projects such as the Intercounty Connector - which would link Prince George's and Montgomery counties - have a crucial, strategic value to Maryland, and must remain on the drawing board, she said.

But a shortfall in the state Transportation Trust Fund, estimated at $29 billion and growing, demands some creative thinking, the chamber said. Public-private partnerships to construct needed facilities, streamlining existing operations to find savings, and short-term alternatives to reduce congestion all must be considered, the chamber said.

Higher gasoline tax

The chamber would even support a 5-cent increase in the gasoline tax - provided that the money be used only for transportation, and provided that the state continue to search for savings, said chamber spokesman William Burns.

All the budget-cutting possible won't bail Maryland out of its brutal budget crunch completely, however, meaning other revenue sources must be found, it was noted.

Businesses want to make sure they don't bear the brunt of that search for new sources of revenue, said Terry F. Neimeyer, president and CEO of KCI Technologies Inc., a Hunt Valley construction engineering firm.

"We certainly need to contribute," Neimeyer said. "But we don't want to be the sole solution."

Ambivalence on slots

Slot machines are one way to increase revenue that the chamber would support, Snyder said. But the organization will only support "carefully regulated slot machines in limited locations to support public education," she said.

Sen. Middleton said the support is not unanimous among chamber members, and argued that the addition of slot machines to Maryland would be a mistake.

They won't really help the racing industry, will cause more problems than they solve, and will sully Maryland's emerging image as a high-tech state, Middleton said.

"Slot machines are a bad bet for the state of Maryland," he said. "They are 100 percent the wrong way to go."

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