Dear Friend:
The Maryland legislature recently completed a three-week special session to address the state's looming budget deficit. This budget crisis has been building for 10 years and was caused by a number of factors. First was a tax cut in the late 1990s that eliminated nearly $1 billion a year in revenue. This was followed by 2002 legislation that mandated an increase in state spending for public schools by $1.3 billion a year. Meanwhile, the state's share of the Medicaid program has continued to soar.
Maryland has always been one of the most fiscally prudent states, one of only a handful that maintains a AAA bond rating. But the budget problem grew, unaddressed during the Ehrlich administration. With a major deficit facing the state beginning in 2008, Governor O'Malley rightly recognized that we needed to take action.
The General Assembly worked on a broad package of budget cuts and tax increases proposed by the governor. I was disappointed with aspects of the complex package, but I was pleased that we were able to put state finances on a sustainable path, to protect our investment in local schools, to increase state investment in college opportunities, health care for working families and clean up of the Chesapeake Bay. The final legislative package:
- Directed the governor to cut a total of $550 million from next year's projected spending. These cuts are on top of $280 million in cuts implemented earlier this year.
- Increased the sales tax from 5 percent to 6 percent. The sales tax will be extended to computer services such as consulting and programming services, software installation and hardware maintenance.
- Raised the cigarette tax to $2 a pack.
- Changed the personal income tax. To offset the increase in the sales tax, the package includes an income tax cut for low- and middle-class families and an increase in the personal exemption. A new tax bracket was added for top earners, but this highest rate is lower than the governor's initial proposal. The new personal income tax brackets are as follows:
- 4.75 percent for individuals making less than $150,000 a year and couples making less than $200,000 a year;
- 5 percent on taxable income above $150,000 a year for individuals and $200,000 for couples;
- 5.25 percent on taxable income greater than $300,000 a year for individuals and $350,000 for couples; and
- 5.5 percent for all income above $500,000 a year.
- Raised the corporate tax rate to 8.25 percent – revenue that will be split between the general fund and higher education.
- Approved a November 2008 referendum on a constitutional amendment to allow up to 15,000 slot machines in five locations across the state.
- Expanded health care services to more than 100,000 uninsured low-income workers who earn less than $23,000 a year. New subsidies will help small businesses offset the cost of health insurance for their employees.
- Created $50 million for Chesapeake Bay cleanup.
I found the proposal to bring slot machine gambling to Maryland the most troubling aspect of the General Assembly's final product, and I opposed those pieces of the package. At least the decision to send the slots question to the voters gives the state the opportunity to resolve this contentious issue finally. I am hopeful that the proposed constitutional amendment will be resoundingly defeated.
I will be in touch again before the 2008 session. Until then have a happy and safe holiday season.
Sincerely,
Brian E. Frosh
P.S. I thought you would be interested in E.J. Dionne Jr.'s recent Washington Post column about the special session. Here is the link: http://www.washingtonpost.com/wp-dyn/content/article/2007/11/22/AR2007112201091.html
