A balanced solution

Our view: Legislation proposed for special General Assembly session would put the state on sound fiscal footing with minimal sacrifices from taxpayers

May 09, 2012

Gov. Martin O'Malley, House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller are making the best of the embarrassing situation caused by their failure to pass a balanced budget when the legislature adjourned in April. The special legislative session due to begin on Monday will focus only on the budget and taxes — not casino gambling or any of the other issues that were still on the table when time ran out — and will follow closely the compromise worked out by House and Senate negotiators on the regular session's final night. Anything can happen when the General Assembly returns to town, but this plan affords the best chance that the state's work can be accomplished with the efficiency and professionalism that escaped the legislature last month.

When the General Assembly convened in January, lawmakers faced a projected, ongoing gap between revenues and expenditures of about $1 billion a year — a problem known as a structural deficit. If the governor's plans for this special legislative session are successful, that gap will have been reduced by more than half, in part because of tax increases but mostly by reductions in anticipated spending. Updated revenue projections and cuts the governor is proposing during the special session — mostly due to Medicaid savings achieved because of provisions in the federal Affordable Care Act — will leave the state with a larger than expected fund balance heading into next year. That, in turn, increases the likelihood that the state can reconcile its remaining structural deficit within the next year or two without further tax increases.

The recent recession was the worst economic downturn since the Great Depression, and it forced most states to take drastic action — either severe spending cuts or major tax increases, or both. Maryland, on the other hand, will have maintained its highly successful investments in K-12 education, held down increases in public university tuition to 3 percent or less per year and secured health insurance for tens of thousands of families who had lacked it before. Here is what Maryland taxpayers have been asked to contribute to make that possible:

•An increase in alcohol taxes, enacted in 2011, that is projected to raise about $85 million a year. It was the first increase in taxes on beer and wine since 1972 and the first on hard liquor since 1956.

•An increase in taxes on so-called "little cigars" and smokeless tobacco, which are gaining in popularity among minors. Taxes on these products had not been increased in conjunction with cigarette taxes, and a proposal that is due for consideration during the special session would bring them closer to parity. Estimates on how much the increase will raise vary, but it is not a major moneymaker — perhaps $5 million a year.

•An increase in income tax rates for high earners — individuals making more than $100,000 a year and joint filers making more than $150,000 — and a limit on exemptions for those groups. About 16 percent of Maryland taxpayers would be affected. The changes will cost about $200 million a year (a portion of which goes to local governments).

•An increase in the so-called "flush tax" for Chesapeake Bay restoration, which was approved this year. The money goes to improve wastewater treatment facilities, and although it doesn't help fix the state's general fund budget, it will be necessary to meet Environmental Protection Agency pollution targets. The change will cost each household an additional $2.50 per month, for a statewide total of about $55 million a year.

In all, that amounts to tax increases of about $345 million a year, or about 0.1 percent of Marylanders' total personal income. Critics can complain that Maryland's taxes are too high or that the state spends too much money, but they cannot credibly complain that the state is simply taxing its way out of its problems. As recently as December 2010, state analysts expected a gap between revenues and expenditures in the state general fund of about $1.8 billion in fiscal 2014. If lawmakers take the actions the governor and legislative leaders are proposing, that figure will have been knocked down to about $500 million. Efforts to constrain spending growth and faster-than-expected economic growth — not tax increases — are responsible for about 80 percent of the improvement.

There's no reason all of this could not have been accomplished during the regular General Assembly session, but it wasn't. Instead, we wound up with a spending plan that cut too much in the wrong places and not enough in the right ones, with the result that the burden of balancing the budget fell most heavily on those who could least afford it. This proposal provides a much fairer solution.

The mess at the end of the General Assembly session left many Marylanders bitter at our elected officials — and not without reason. But some have taken that a step further to oppose a special session, in the belief that it would somehow punish lawmakers for their failure. It wouldn't. They wouldn't be the ones hurt by the failure to set the budget right; we would be.

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