Ehrlich to offer tight budget

No broad tax increases or slots money included

Stopgap techniques once again

New charge contemplated for out-of-state workers

January 18, 2004|By David Nitkin | David Nitkin,SUN STAFF

Gov. Robert L. Ehrlich Jr. will submit a $22 billion budget this week that would pull the state through another lean year with a variety of short-term fixes - including the possibility of a new tax on out-of-state workers - but would fail to solve Maryland's continuing fiscal problems.

Administration officials and legislators say the governor's spending plan will contain no broad-based tax increases or money from slot-machine gambling when it is unveiled Wednesday.

Instead, the governor's budget will rely heavily on one-time pots of cash - a stopgap technique that is being used for the third consecutive year. It will also contain a variety of relatively minor new revenue-raising measures, including a contemplated charge on employees who earn money in Maryland but reside in states without income taxes.

"There are some who feel that people who earn wages in Maryland but live out of state should pay what we all pay," said state Budget Secretary James C. "Chip" DiPaula Jr., who would not provide additional details on the idea.

Leaders say that program cuts alone are likely to allow Ehrlich to meet his goal of filling a gap of more than $700 million between projected revenues and spending. He also won't meet a recommended spending growth limit imposed by the legislature, a concept that the Republican governor has historically supported.

With limited new revenues and a cobbled-together one-year solution, the prospects of a landmark multi-year schools funding program remain uncertain. Projected deficits caused by health and education commitments will remain far into the future.

"It does nothing that will solve the critical problems that Maryland has, and the problems he came in to solve," said Sen. Ulysses Currie, a Prince George's County Democrat and chairman of the Senate Budget and Taxation Committee. "I think he's saying, `Let's solve it next year, or the year thereafter.'"

The lean budget and future problems will place more pressure on lawmakers to legalize slot machines, which Ehrlich supports.

By law, the governor must submit a balanced spending plan a week after the 90-day session begins. Constrained by what are considered the strongest executive budgetary powers in the nation, lawmakers can only cut from the plan; they cannot add to it or shift money between programs.

Meeting obligations

The budget shortfall, said Paul E. Schurick, Ehrlich's communications director, "will be filled through a combination of spending reductions, some one-time budget fixes and some additional revenues."

"This budget will meet the education and health care obligations of state government. This budget will also reflect a number of Governor Ehrlich's priorities," including more money for drug treatment and mental health and the creation of a Cabinet-level agency to assist the disabled, and avoiding an increase in taxes, Schurick said.

The governor and his advisers have tried to keep specifics under wraps, but some are emerging. The short-term tactics are already drawing criticism.

Ehrlich is expected to take about $160 million from a reserve fund that holds county income-tax rebates that have not been claimed. The governor will propose splitting the money with counties, taking $80 million for the state, even though the entire amount would eventually go to municipalities.

"It's a one-time gimmick, and it might adversely affect the bond ratings of the counties," said House Speaker Michael E. Busch, an Anne Arundel County Democrat.

In a second maneuver, Ehrlich will count on collecting back taxes that state Comptroller William Donald Schaefer says are owed by companies that have shifted assets to shell corporations in Delaware to avoid Maryland corporate taxes.

The comptroller, who recently won court victories on the issue, has identified more than 70 companies he says owe the state at least $100 million. But collecting the money is a bit of a challenge.

"Any kind of help we can get from the governor's office would be appreciated," said Michael Golden, a spokesman for Schaefer. "We know what we are owed. The question is getting it in here."

The idea of imposing an additional income tax on those who earn money in Maryland but live in states without such a tax has been discussed before. Those earners already pay the state portion of Maryland's income tax, but they do not pay an additional portion to counties and the city known as the "piggy-back tax," a charge that makes Maryland's income taxes among the highest in the nation.

In 2001, according to the most recent data available on the state comptroller's Web site, 85,000 nonresidents paid $76 million in Maryland income tax. Information on where those filers lived and how many of them could be subject to the piggy-back tax - which adds roughly 50 percent to the state tax bill - was not immediately available.

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