By KATE PRAHLAD, Capital News Service
ANNAPOLIS - After a week in which he laid out bits and pieces of his plan to close a $1.7 billion budget shortfall, Gov. Martin O'Malley laid out the whole tax plan Thursday and emphasized repeatedly that January will be too late to act on it.
"This could turn from $1.7 billion into $2.2 billion if we sit back and wait," said O'Malley, who has said he wants to call a special session this fall to deal with the budget. "We can't afford a half a billion dollars more."
O'Malley then turned to a decidedly low-tech method to illustrate state spending: Sketching the "house" that is Maryland on a dry-erase board, he drew education as the foundation, public safety as the roof, and health as the walls. Those three areas make up 83.5 percent of the state's spending.
The governor pledged to continue building the foundation, saying his budget plan would let the state keep funding the Thornton education plan. It has grown faster than state officials expected and has driven much of the budget crisis.
But O'Malley told a receptive audience at Annapolis Elementary School late Thursday that growth in school spending would be slowed down in his next budget.
Under the Thornton plan, education funding grew by $567 million in this year's budget, the last year that increases in school aid were phased in. In 2009, the education budget will rise by a comparatively modest $119 million by capping an inflationary index for two years.
"We're still moving forward, but just a little more moderately," O'Malley said.
He said his administration will begin budgeting for the Geographic Cost of Education Index, a formula to offset geographic differentials in school costs that was called for in Thornton but never funded. It will be phased in over three years.
"None of this is going to be easy and all of this is going to be hard," O'Malley said. "And I'm not at all unmindful of the sacrifices required."
Under the governor's plan, those sacrifices include almost $2 billion in budget cuts, tax increases and revenues from legalized slot-machine gambling.
The wealthiest Marylanders would see their income tax bills go up, while businesses would face a higher corporate income tax. The revenues from that hike would go to transportation and higher education, he said.
Sales tax would increase by one cent per dollar and would be expanded to include services like health clubs and tanning salons that are not currently taxed. The cigarette tax would double to $2 per pack, with some revenues going to health care initiatives. Meanwhile, property tax would be reduced by 3 cents per $100.
Businesses would also have to participate in combined reporting, which would make it harder for multistate companies to shift profits to others states and avoid Maryland taxes.
"I understand that this is going to be painful for some people—smokers, millionaires who rent," O'Malley said.
Lt. Gov. Anthony Brown echoed O'Malley's sentiment that the plan would work best if implemented as soon as possible.
"We really can't wait until January," Brown said. "It's going to be way more effective if we come in in November."