Ehrlich seeks to rebuff tax rise

Rejecting decided solution to budget woes criticized

AAA bond rating may be at stake

Governor said to seek ally on Board of Public Works

April 10, 2003|By Michael Dresser and David Nitkin | Michael Dresser and David Nitkin,SUN STAFF

Gov. Robert L. Ehrlich Jr. said yesterday that he is seeking a way to avoid the property tax increase agreed to in the budget compromise he forged with the General Assembly -- a notion Democrats denounced as a breach of faith.

Such a move would leave a $165 million gap in the $22.4 billion budget and raise questions about how the state would pay the interest on the bonds it has issued. At stake could be Maryland's cherished AAA bond rating, which lowers the costs of its borrowing for construction projects.

Rejecting the tax increase, which appears to run counter to Maryland law, could set up a high-level confrontation with the Assembly.

"That would be an all-out declaration of war," said Del. Peter Franchot, a veteran Democrat from Montgomery County.

The suggestion represents another effort by the governor to emphasize his GOP anti-tax position in the wake of the Assembly's rejection of his plan to legalize slot machines at Maryland racetracks. Ehrlich already has promised to veto a separate $135 million package of business tax increases passed by the legislature, pledging to make up the difference through spending cuts.

When lawmakers approved the budget Saturday, it was agreed the state would continue to pay its debts by increasing the state's share of property tax bills from about 8 cents per $100 of assessed value to about 13 cents. For the owner of a home assessed at $150,000, that portion of the bill would likely increase from $126 a year to about $200.

Ehrlich hinted yesterday that he is looking for an ally in an effort to block the increase by the Board of Public Works -- which is required by law to set the property tax rate at the level needed to pay the state's debts. In addition to the governor, the other two members of the board are Comptroller William Donald Schaefer and Treasurer Nancy K. Kopp.

"We're working with the comptroller to look for ways not to do it," the governor said. Schaefer, a Democrat who has established cordial relations with Ehrlich, did not return a call seeking his comment.

The governor said he did not want to jeopardize the state's AAA bond rating. "You don't fool around with debt service," he said.

Ehrlich's statement came late on a day marked by conflicting statements by various spokesmen for the administration.

Earlier in the day, the governor's press secretary Greg Massoni said the tax rate increase would have to happen. "The Board of Public Works must raise it. I don't know that there's going to be three votes for it," Massoni said. "[But] it's going to go through."

The property tax idea surfaced March 14, when Ehrlich submitted a revised plan known as a supplemental budget to bring his initial spending proposal into balance.

Because Ehrlich had altered his slots proposal to reduce the amount of up-front licensing fees charged to racetracks, and because officials estimated that tax receipts were coming in lower than expected, the supplemental budget needed to plug a $450 million hole.

In an interview yesterday, the governor denied authorship of the idea of raising $165 million through the property tax increase. "The legislature came to us and said, `We're taking the money.' That got interpreted that we put it on the table," Ehrlich said.

House Speaker Michael E. Busch was incredulous when told of Ehrlich's statement.

"That's not the truth," the speaker said. "It was in their supplemental. They brought it down. Nobody twisted their arms to do it. It was the responsible thing to do."

The Annapolis Democrat said a failure to raise the tax rate would be seen as a "breach of faith" with the citizens of Maryland as well as the Assembly. "If they would renege on this, their credibility with everyone would be severely hampered," Busch said.

Busch said he only learned the administration was thinking of avoiding the tax increase when he was featured on a Washington radio show after Lt. Gov. Michael S. Steele yesterday.

During the show, Steele said raising the tax "is not our intention at this time."

"That was at one time under consideration by the governor," Steele said on WAMU-FM. "But when it became very, very clear that this was nothing more than a back-door effort to blame the governor for raising taxes and there was going to be no movement on slots, that too came off the table. So there will be no increase in taxes."

Steele said the money needed to fill the budget gap would be made up through spending cuts.

But a lawyer in the attorney general's office said cuts would not solve the problem. Robert A. Zarnoch, counsel to the General Assembly, said the law specifies that the board "shall" set the tax rate in the amount needed to service the debt.

"It's a mandate for them to do this. The board would have to do it," he said.

Zarnoch said the governor may have the authority to make spending cuts -- but that he cannot reappropriate the money for another purpose. And paying the state's debts, he said, is a constitutional obligation.

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