The deficit, slain

November 20, 2007

For three weeks, the State House has operated as a crucible as Gov. Martin O'Malley put the heat on the General Assembly to shape a compromise over his deficit-reduction package. It wasn't always pretty. But in the end, lawmakers cast the tough votes to raise taxes and gave the governor much of what he wanted.

It was an impressive victory for Mr. O'Malley - with significant and lasting implications. At a minimum, it means the state's structural deficit has finally been brought under control beyond the piecemeal, "take from Peter to pay Paul" approach of the last administration.

While next year's projected $1.7 billion deficit has been largely resolved, it will still require significant spending cuts. But there's no reason to expect the problem to return within the next several years - if appropriate spending discipline is maintained.

The special session was not the ideal way to ponder such important matters, but it may have been the only way for Mr. O'Malley to craft a majority given the political realities in Annapolis. Certainly, when you have so many Republicans voting against slots who favored them in the past and Democrats voting for them who previously opposed them, there's something other than thoughtful consideration going on.

As furious a pace as lawmakers faced in the final days - and as complicated the measures they approved - it may be a while before all the ramifications (and unintended consequences) are known. But the highlights and lowlights include:

Taxes. To raise the majority of $1.3 billion, lawmakers approved a penny increase on the sales tax, the measure that could get them in the most trouble with voters in three years. But at least they were straightforward about it. Their decision to apply the sales tax to computer services in the session's final days without adequate opportunity for dissenting voices to be heard was not the legislature's finest hour.

On income taxes, the outcome was better, with the restoration of a graduated tax rate (Maryland used to have one, but it was largely overtaken by inflation) that requires more from higher-income filers. Lawmakers also wisely closed the loophole that has unfairly allowed large companies to avoid real estate transfer taxes. The decision to raise the corporate tax from 7 percent to a still-reasonable 8.25 percent keeps Maryland competitive with surrounding states.

The extra $1-a-pack tax on cigarettes may upset smokers, but it's going to mean fewer children will get hooked on tobacco.

Slot machines. Leaving aside the political machinations, the outcome was right: It's now up to voters to decide next November whether slots are salvation or folly. That makes slots far from a sure thing.

Health care. After their work on the deficit, approving legislation to provide health insurance coverage for more than 100,000 of Maryland's uninsured is the lawmakers' second-best accomplishment. That should raise Maryland out of the bottom tier of states for adult Medicaid coverage.

Transportation and the environment. While lawmakers approved about $400 million in road and transit construction, there should have been more. A new $50 million fund to address runoff into the Chesapeake Bay is a plus.

Budget cuts. Legislators have insisted on $550 million less spending next year, and it's not entirely clear what that will include. One thing is for certain: It means cutting Thornton education aid - a bitter pill for Baltimore and other less-affluent jurisdictions.

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