By BERNIE BECKER, Capital News Service
ANNAPOLIS - The O'Malley administration on Tuesday tied property tax cuts and increased health care funding to the passage of a slots referendum next November.
The announcement, on the first full day of a special legislative session called to tackle the state budget gap, came as House and Senate fiscal committees were formally introduced to Gov. Martin O'Malley's plan to bridge the shortfall, which he estimates will be $1.7 billion.
If voters approve slots, a 3-cent decrease in the property tax rate would start in 2010, said Joseph Bryce, the governor's chief legislative officer. If the referendum fails, there would be no property tax relief and O'Malley's plan to expand Medicaid coverage to adults earning 116 percent of the federal poverty rate—about three times the current rate—would also be scrapped.
The governor's proposal to increase Medicaid eligibility for families to the higher income level would proceed with or without slots, Bryce said.
O'Malley told reporters after the hearing that he needed "to adjust some of the startups" in his plan to accommodate for the possible failure of the slots referendum. But, he added, "I think it will succeed."
But tying slots to those issues means "this slots proposal has nothing to do with the deficit," Delegate Steve Schuh, R-Anne Arundel, said after a morning hearing of the committees. That means "there's no rush" to consider slots in the special session.
"We can take more time to craft an appropriate plan," he said.
But Bryce said during the hearing that "slots has so dominated the landscape" that a referendum should be agreed upon sooner rather than later.
The rest of the governor's proposals—which include an increase in the sales tax from 5 cents to 6 cents per dollar, making the income tax more progressive and closing corporate tax loopholes—clearly address the projected shortfall.
Budget analysts from the Department of Legislative Services told lawmakers that, based on estimates for the next fiscal year, state spending has increased at twice the rate of revenue since 2006.
"The challenge is to bring those two together, either by spending less" or raising more revenue, said Warren Deschenaux, director of policy analysis for the department.
Deschenaux's department puts the estimated shortfall for fiscal 2009 at $1.5 billion, slightly lower than the administration's projection.
Taking no action on the governor's proposals could lead to "severe spending cuts," including more than $500 million in direct aid to local governments, said Budget Secretary Eloise Foster.
She said current options for spending cuts could prove more difficult than in the last state budget crisis, during the early 1990s, since lawmakers then took all the "low-hanging fruit" in the budget. Foster added that the state would have to continue to make cuts in upcoming years as well if it did not act soon.
But Delegate Mary-Dulany James, D-Harford, challenged Foster on that assertion, citing earlier testimony from Deschenaux that said the state's general fund would be "no worse, but still pretty bad" if no action was taken.
And Senate Minority Leader David Brinkley, R-Frederick, citing skeptical comments from Comptroller Peter Franchot about the wisdom of the special session, continued to question whether the session was even needed at all.
Franchot "has qualified staff, too," Brinkley said.
Bryce responded that the governor had chosen to start dealing with the deficit right away instead "of dealing with the problem when it gets here."
O'Malley said Tuesday he was getting good feedback following the session's first hearings and that he is "absolutely open" to any fiscally sound compromise on the budget that protects working families and public safety. But the governor added he had not yet seen any proposed spending cuts from Republican lawmakers, who largely oppose the new taxes.
Schuh predicted the special session would end with more "spending restraint" than O'Malley has advocated and slightly fewer tax revenues.
But he said the best solution would be restraining spending even more and coupling that with legalizing slots and charging "very large upfront licensing fees" for slots operators. With those changes, no new taxes would be needed, Schuh said.
"But will it happen?" he asked. "Not in our lifetime."