Friday, March 14, 2008

Senate nears budget vote

Plans to repeal computer services tax gather steam

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J. Adam Fenster⁄The Gazette
Sen. Ulysses Currie reads legislation with Senate President Thomas V. Mike Miller Jr. behind him as senators begin the debate on the state budget.
ANNAPOLIS — A flurry of late proposals for repealing the computer services tax dominated the debate this week as the Senate prepared to vote today on a $15 billion budget plan that clearly remains a work in progress.

On Thursday, Sen. Robert A. Zirkin introduced a bill to repeal the much-debated computer services tax, if voters in November approve a constitutional amendment legalizing slot machine gambling.

Zirkin’s bill is latest in a long line of proposals to replace the so-called tech tax, passed late in the special legislative session held last fall.

‘‘From a business standpoint and from a legal standpoint it’s just a terrible tax,” said Zirkin (D-Dist. 11) of Owings Mills. ‘‘We’re thought of now as a hub of technology and it is really foolish to put any roadblocks in the way of that.”

While lawmakers began pondering Zirkin’s bill, Gov. Martin O’Malley (D), speaking at news conference in Dundalk on Thursday, said that he supports a repeal of the tax.

O’Malley met with fiscal leaders from the House of Delegates and the Senate on Tuesday night, reiterating his desire to work ‘‘to mitigate the effects of the bill,” O’Malley spokesman Rick Abbruzzese said.

O’Malley would support a repeal if there is a way to close the $200 million revenue shortfall it would create, Abbruzzese said, adding that among the plans O’Malley is considering is a proposal by Sen. Verna L. Jones to create new income tax brackets for Maryland’s wealthiest.

Jones’s bill would levy a 5.5 percent rate on taxpayers earning $500,000 or more, a 6 percent rate on those earning at least $750,000 and a 6.5 percent rate on millionaires.

The bill would take effect in tax year 2008, raising $231.8 million toward the fiscal 2009 budget, reflecting collections from all of tax year 2008 and half of tax year 2009, state analysts say. The revenue would drop to $165.3 million in fiscal 2010, comprising half of tax year 2009 and half of tax year 2010.

The bill does not repeal the tech tax, but Senate fiscal leaders have said that it could be combined with a repeal, something Jones said on Wednesday that she does not want to see.

‘‘I think we need to come up with other revenue sources before we look at repealing anything,” said Jones (D-Dist. 44) of Baltimore.

On Wednesday, the Senate hammered out details of the budget bill, rejecting a series of Republican-sponsored amendments.

The most significant, proposed by Senate Minority Leader David R. Brinkley, would have repealed the tech tax, making up the lost revenue by carrying a $114 million balance from the state’s general fund forward to fiscal 2010 and requiring Gov. Martin O’Malley to make $100 million in cuts from state agencies.

‘‘This was a bad idea from the start,” Brinkley (R-Dist. 4) of New Market said of the tech tax during the floor debate. ‘‘The question now is how do we resolve it, how do we accommodate it and how do we get ourselves out of this quagmire.”

The amendment failed on a 26-19 vote. Several Democrats voted for the proposal, including two from Montgomery County — Jennie M. Forehand (D-Dist. 17) of Rockville and Rona E. Kramer (D-Dist. 14) of Olney — which has a high number of tech companies and could take the biggest hit from the tax.

Sen. Andrew P. Harris said Zirkin’s bill and Brinkley’s amendment are ‘‘philosophically the same.” Using slots revenue to fill the gap left by a tech tax repeal is not a long-term solution, said Harris (R-Dist. 7) of Cockeysville.

‘‘That [slots] money was already spent,” he said.

Several issues could be headed to a conference committee of fiscal leaders from each chamber. Among them are higher education, where a freeze on in-state tuition seems unlikely and the phase-in of a Medicaid expansion plan passed during the special session.

On Friday, the Senate Budget and Taxation Committee approved delaying the implementation of coverage for uninsured adults.

‘‘We’ve gone further than probably the House would want to go,” said Sen. Richard S. Madaleno Jr. (D-Dist. 18) of Kensington.

Stem cell research funding is also destined for conference, lawmakers said. The House wants $15 million. The Senate has approved $5 million.

Even as the governor mentioned Jones’ bill as a possible solution to the hole a tech tax repeal would leave, fiscal leaders in the Senate questioned whether there would be enough support for the legislation.

‘‘I think the administration and leadership is going to be working on ways to repeal this,” said Sen. James E. DeGrange Sr., chairman of the capital budget subcommittee. ‘‘But you’ve got to find a sustainable revenue source.”

Jones’s bill might not be that source, said DeGrange (D-Dist. 32) of Glen Burnie, the Senate majority whip.

‘‘I don’t think there’s a lot of willingness to go and raise another tax,” he said.

Del. Galen R. Clagett was skeptical about the chances of a repeal this year.

‘‘I think it will eventually get pulled back,” Clagett said. ‘‘But I don’t think it’ll happen this year with the situation we have with the budget.”

As the session approaches its final three weeks, lawmakers are looking for consensus on the very tax issues that divided them during the special session.

House Speaker Michael E. Busch on Wednesday put the blame for the tech tax and the onus to find a solution on the Senate, which added computer services to the 1 cent increase to the sales tax late in the special session, after rejecting adding other services.

‘‘It was not our initiative,” said Busch (D-Dist. 30) of Annapolis. ‘‘We passed combined reporting and increase in the corporate income tax, which was rejected by the Senate along with the hotel tax.”

Busch said delegates are ‘‘open to anything,” but said it would be up to the Senate to find consensus first.

‘‘I don’t see any of this taking place until some kind of action is taken in the Senate,” he said. ‘‘Until there’s a significant source of revenue or substantive cuts I don’t know how you balance that out.”

Del. Keith E. Haynes (D-Dist. 44) of Baltimore said he expects that there will be ‘‘many areas of consensus” between the chambers ‘‘because of the overarching nature of the budget constraints in the environment we’re in.”

Clagett agreed.

‘‘When there’s a scarcity, there ain’t much to fight about,” said Clagett (D-Dist. 3A) of Frederick.

O’Malley will continue to be involved in budget negotiations, Abbruzzese said.

‘‘He was heavily involved last year in conference committee,” Abbruzzese said. ‘‘He has had conversations with both houses about the priorities he’d like to have maintained in the budget and he’ll continue talk to them.”

House Majority Whip Talmadge Branch said he expects the budget to be an easier lift than other bills.

‘‘I don’t think getting consensus on the budget will be as difficult as it will be on some of the legislation going around,” he said. A bill to require that police take DNA samples upon arrest, could have a tough time, he said.

The House will spend next week debating its budget plan without the pressure it faced during the 22-day special session.

‘‘Having the Senate leave after having passed all its [budget] items was pretty intense for the House,” said Branch (D-Dist. 45) of Baltimore. ‘‘... Right now nothing seems to be on the plate as tough as we did during the special session.”

Still, the budget debate has injected life into a session that until recently seemed to be sputtering.

‘‘People are flailing around trying to find a solution to this issue,” Madaleno said of the tech tax, which he predicted is headed for conference committee.

While negotiations have not reached the 11th-hour urgency they took on during the special session, the debate could go down to the wire.

‘‘We’re not at that point yet, but I think this is an issue that will wait until the very end,” he said.

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