House and Senate conferees now in place

As we discussed yesterday, the state Senate and House of Delegates have each passed their own version of a budget plan. Now, it’s up to a conference committee to work out the differences. Actually, there are three conference committees, since three separate bills are needed to put next year’s budget into effect. 

Senate	House
Budget Bill (SB 150) Kasemeyer, Madaleno, DeGrange, Robey, Colburn Senate advisors: Jones-Rodwell, McFadden	Conway, Proctor, Bohanan, Gaines, Beitzel House advisors: James, Haynes, Guzzone
Reconciliation Act (SB 152) Kasemeyer, Madaleno, DeGrange, Robey, Colburn Senate advisors: Jones-Rodwell, McFadden	Conway, Hixson, Jones, Griffith, Hammen House advisors: Bohanan, G. Clagett, Gaines, Beitzel
Revenue Bill (SB 523) Kasemeyer, Robey, Madaleno, DeGrange, Jones-Rodwell Senate advisors: McFadden, Manno	Hixson, Frick, Barve, Rosenberg, Bohanan House advisors: Jones, Branch, Ross

“Advisors” participate in the conference committee’s discussions, but do not vote. A majority of members of the whole conference committee – Senate and House members – must approve a conference committee report for it to go back to the Senate and House for final approval.

Both versions include budget cuts, progressive revenue measures, and a shift of a portion of the cost of teachers’ retirement to local government budgets.

Significantly, the Senate has a larger revenue package, which would leave a smaller revenue shortfall in the 2013 and future sessions. The Senate package also leaves a larger fund balance at year end. In the event that Maryland’s finances are affected by an economic downturn or federal budget cuts, we are less likely to need mid-year budget cuts under the Senate proposal.

MBTPI recommends using the Senate’s tax rates, without the flat rate applying to taxpayers over $500,000. In addition, adopt the House plan to phase out personal exemption amounts for high-income filers. This proposal allows for a larger fund balance this year, reducing the likelihood of mid-year cuts, and it positions the state for a more manageable budget over the next two years.

The Senate scheduled the teacher retirement shift evenly over four years. The House version does it in just three years, and it’s “front-loaded:” passing ½ of the cost to counties in the first year. MBTPI supports the 4-year phase in of the teacher retirement shift. It will avoid an abrupt crisis for local government budgets and give them more time to adjust, and for local revenue sources to recover.

Both versions increase the tax on cigars to be more comparable with the tax on cigarettes. The House version includes a significant tax increase on chewing tobacco, whereas the Senate version increases chewing tobacco taxes only slightly. MBTPI supports a uniform 66% rate on cigars, chewing tobacco, and other non-cigarette tobacco products. (Retain the existing 15% rate only for premium cigars. They are not marketed to appeal to teens and young adults). This will substantially increase the cost of all tobacco products readily available to young people, effectively reducing tobacco use by youth. This proposal will retain a single rate for almost all non-cigarette tobacco products, and place all of them at a comparable tax rate with cigarettes. If the conferees do not support an increase in the rate on chewing tobacco to 66%, then we favor retaining the 70% rate on regular cigars in the House and Senate proposals.

Please call on legislators to tell the conference committee members to support these positions for a responsible budget that promotes education, health and Maryland’s sound future. You can also urge your representatives in the legislature to discuss these positions with conference committee members.

You can use this link to email a legislator.

Senate Appoints Budget Conferees

The Senate has appointed its conference committee members and advisors on the budget package (see below). Since there are actually three bills with Senate-House differences, there are three conference committees, though there is considerable overlap. Senators Kasemeyer, DeGrange and Madeleno will sit on all three conference committees.

The next step is for the House of Delegates to appoint its conference committee members and advisors.

Advisors participate in the conference committee’s discussions, but do not vote. A majority of members of the whole conference committee – Senate and House members – must approve a conference committee report for it to go back to the Senate and House for final approval.

As we discussed earlier, the Senate’s revenue plan is more sustainable than the House’s. The Senate conference committee members should push to maintain an adequate amount of revenue so that the legislature does not face a big revenue shortfall again next year.

The Senate plan, however, has a big loophole for chewing tobacco and similar  smokeless tobacco products. The Senate conferees should move to the House plan for tobacco taxes, or even better, a uniform 66% tax on all non-cigarette tobacco products.

The state constitution calls for the Senate and House to agree on a final budget by next Monday, April 2. The budget bill will become law immediately upon final passage by the Senate and House. The other bills must be signed by Governor O’Malley to reach the finish line.

Senate Conferees

Budget Bill (SB 150)

Kasemeyer, Madaleno, DeGrange, Robey, Colburn

Senate advisors:

Jones-Rodwell, McFadden

Reconciliation Act (SB 152)

Kasemeyer, Madaleno, DeGrange, Robey, Colburn

Senate advisors:

Jones-Rodwell, McFadden

Revenue Bill (SB 523)

Kasemeyer, Robey, Madaleno, DeGrange, Jones-Rodwell

Senate advisors:

McFadden, Manno

The Week Ahead

The conference committees meet this week to hammer out the differences between the House and Senate Operating Budgets.  Last week we analyzed the differences between the House and Senate budgets.  You can see MBTPI's recommendations for the conference committees and contact committee members here.  The House and Senate also have a number of hearings on the capital budget. 

Monday, March 26th

Monday is Crossover Day.  This is the deadline for each chamber to send the other those bills it intends to pass.  Bills sent across the hall after this date will be referred to the Rules Committee instead of the relevant committee based on their substance, and may not get heard.

Friday, March 30th  

The Bureau of Labor Statistics will release state employment figures for February 2012.  In January Maryland's unemployment rate dropped to 6.5 percent, its lowest rate in three years.

Senate budget plan is more sustainable

How big a problem will this year’s budget leave for next year? That is a critical question for conference committee members to evaluate in resolving differences between the Senate’s budget plan and the House of Delegates’ version.

The House Appropriations and Ways and Means committees have provided 37 pages of description and analysis to back up their budget recommendations. But nowhere do they estimate the effects of this year’s budget on next year’s finances.

We have done some back of the envelope estimating at MBTPI. If the Senate plan takes effect, we think revenues will be about $50 million short of meeting projected expenditures. That’s not ideal, but it’s well within the range of normal budgetary adjustments.

The House version, though, provides less revenue and a smaller year-end balance. The result: a $200 million shortfall for the legislature to resolve this time next year. In order to bridge that gap, the state will either need to revisit its options for new taxes, or make more cuts to education, healthcare, public safety and community services.

Also, the Senate plan leaves a much larger cushion in the state’s general fund for June 2013 – meaning there’s less risk of precipitous mid-year cuts in the event of a revenue drop caused by a worsening of the fragile economy or federal budget cuts.

The Senate tax plan does affect most households in the state, but it calls for a pretty moderate contribution. For families in the middle of the middle class (around $55,000 in income) it’s less than a dollar a week. For those at the upper reaches of the income range, it’s still less than one fifth of one percent of their income.

It’s better to provide adequate, responsible and sustainable revenues now. The conference committee should support a revenue plan that’s closer to the Senate version.

House budget plan: less revenue, bigger problem next year

The House of Delegates’ money committees have completed their work on a budget package for the state. It will be debated in the full House of Delegates later this week.

Compared with the state Senate’s budget plan, the House package:

• Shifts teacher retirement costs more quickly than the Senate plan. The House plan phases in the shift over three years, compared with four in the Senate. Plus the House plan is front-loaded – shifting 50 percent of the cost in the first year. The Senate plan provides a more reasonable, sustainable transition for local governments.
• Raises less revenue. The House plan does not increase taxes on households with incomes under $100,000, however it raises only half the revenue as the Senate plan.
• Cuts slightly more from budgets.
• Transfers slightly more from dedicated fund balances – especially the University System of Maryland and Morgan State University.
• Leaves a smaller year-end balance.

One advantage of the House plan is that it has broader increases in taxes on tobacco products. The Senate plan included a large tax increase on cigars, but only a modest hike on chewing tobacco. The House plan significantly increases both. The revenue differences are minor, but the Senate’s failure to provide a significant increase on smokeless tobacco misses a big opportunity to reduce teen tobacco use. See our earlier blog.

Overall, the Senate plan is a better choice for the state. The House revenues are somewhat more progressive. However, the House plan will result in more cuts this year, and it will leave the state with a bigger problem next year.

The Week Ahead

Last week the Senate passed its version of the budget, including progressive and moderate revenue measures that protect the state from more painful cuts.  This week budget action moves to the House.

Monday, March 19^th

• Senate Budget and Taxation Committee holds a hearing on the Tax Credit Evaluation Act (SB 739/HB 764), which MBTPI supports.   The committee will also hold hearings on a number of tax credits and other bills.  2pm in the Senate Office Building.
• House Ways and Means Committee holds a hearing on the State and Local Revenue and Financing Act of 2012 (SB 523).  2pm in the House Office Building.
• House Appropriations Committee will hold a hearing on the Budget Reconciliation and Financing Act (SB 152).  3pm in the House Office Building.

Tuesday, March 20^th

• Senate Judicial Proceedings Committee holds a hearing on SB 966, which would prohibit discrimination on the basis of employment status.  One of the distinctive features of the Great Recession and its aftereffects is that the number of long-term unemployed has risen dramatically.  The situation is further exacerbated because some employers now refuse to consider applicants unless they are already employed.  SB 966 would prohibit that practice in Maryland.  1pm in the Senate Office Building.

Wednesday, March 21^st

• House debates the Operating Budget (2nd Reading, subject to change).
• Senate Finance Committee holds a hearing on SB 778, which would increase regulation of rent-to-own businesses. MBTPI supports this bill.  1pm in the Senate Office Building.

Thursday, March 22^nd

• House debates the Operating Budget (3rd Reading, subject to change).

Senate Plan Falls Short on Smokeless Tobacco

The Senate budget plan took a great step forward by increasing the tax on cigars to be comparable with the tax on cigarettes. The tax on cigars goes from 15% of the wholesale price up to 70%. (The tax on a pack of cigarettes is $2). This measure will produce some revenue, but it’s biggest value is the health benefits of reducing tobacco use by young people.

The Senate plan only raises the tax on chewing tobacco by a small amount – from 15% to just 20%. Yet the tobacco companies have been marketing both cigars and chewing tobacco in ways that appeal to young people. So under the Senate plan, teens and youg adults are likely to simply switch from cigars to chewing tobacco. This only changes the type of cancer that they are risking.

The House of Delegates should raise the rate on chewing tobacco to 70% as well. The Center for Tobacco Regulation provides the following, very compelling evidence:

Protect Maryland’s Youth

Increase the Tax on Smokeless Tobacco to 70% of Wholesale Price

Youth Smokeless Tobacco Use

• A national study by the U.S. Centers for Disease Control and Prevention (CDC) found that 15 percent of high school boys have used smokeless tobacco – a 36 percent increase from 2003.
• Youth aged 12 to 17 are more likely to use smokeless tobacco products than adults aged 18 to 34.
• High school boys that use smokeless tobacco products are nearly five times more likely to smoke cigarettes daily than high school boys that do not use smokeless tobacco.

Smokeless Tobacco is Harmful

• The U.S. Surgeon General concluded that smokeless tobacco leads to nicotine addiction and cancer, and is not a safe substitute for smoking cigarettes.
• Smokeless tobacco causes cancer of the esophagus, pharynx, pancreas and stomach.  The World Health Organization determined that smokeless tobacco users have an 80 percent higher risk of developing oral cancer and a 60 percent higher risk of developing pancreatic or esophageal cancer.
• Between 60 and 78 percent of smokeless tobacco users develop oral lesions, which can lead to oral cancer, within the first three years of use.

Marketing Smokeless Tobacco to Youth

• Sweet, candy and fruit flavors such as berry, cherry, citrus, peach, and vanilla appeal to youth users and mask the harsh flavor of tobacco. 
• Smokeless tobacco products frequently come in brightly colored containers that resemble candy packaging and attract youth users. 
• ·         Advertising and marketing expenditures of smokeless tobacco products have increased by 276 percent since 1998, with the greatest increase coming in the form of discounts and free samples.

Please Protect Maryland Youth – Increase the Tax on Smokeless Tobacco Products to 70 Percent of Wholesale

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The Week Ahead

In case you missed it, MBTPI testified in support of combined reporting corporation income tax, tax on incomes over $1 million, and applying the sales tax to certain services (with amendments). We also blogged several times about the Doomsday Budget, the need for fair and moderate revenues, and reporting on the budget that is emerging in the Senate.

Monday, March 12th

• House Environmental Matters and Economic Matters Committees hold a joint hearing on the mortgage foreclosure settlement, featuring the Attorney General.  4pm in the Joint Hearing Room.

Wednesday, March 14th 

• House Education and Economic Development Subcommittee makes its decisions on various committee reports.  1pm in room 145, House Office Building.
• House Health and Human Resources Subcommittee makes its decisions on various committee reports.1pm in room 150, House Office Building.
• House Public Safety and Administration Subcommittee makes its decisions on various committee reports.1pm in room 120, House Office Building.
• House Transportation and the Environment Subcommittee makes its decisions on various committee reports.3pm in room 120, House Office Building.
• Senate debates the Operating Budget (2nd reading, subject to change).

Thursday, March 15th 

• MBTPI is cosponsoring a Community Conversation on Maryland Budget Needs and Challenges.  6:30-8:30pm at Woods Memorial Presbyterian Church, 611 Baltimore Annapolis Boulevard, Severna Park, MD 21146.

Friday, March 16th

• Senate subcommittees report to full committees today on the Capital Budget.
• House Appropriations Committee makes its decisions on various committee reports. 1pm in room 120, House Office Building.
• Senate debates the Operating Budget (3rd reading, subject to change).

Senate Budget and Taxation Plan Phases in Pension Shift

In addition to budget cuts and revenue increases, Governor O’Malley’s budget plan included a $239 million shift of teacher pension costs from the state budget to local governments.

The Senate Budget and taxation Committee recommends a more moderate, phased-in approach.

Under the Committee’s plan:

• The shift will phase-in over four years (fiscal years 2013 through 2016). The Governor’s plan implemented the shift all at once.
• The shift will only affect the payments for the retirement benefits earned by active employees (technically called “normal costs”). The state would still pay 100 percent of the accumulated unfunded retirement liability from previous years. The Governor’s plan called on the local governments to share the cost of unfunded liabilities as well as normal costs.
• Only school employees’ retirement payments are included in the shift. The Governor’s plan would also have shifted a share of library and community college employees’ pension costs.

The Committee’s plan is more reasonable and, while it will still have a significant impact on local budgets, it’s more gradual and sustainable than the Governor’s proposal.

It makes sense for the state and the local governments to share teacher retirement costs. Education finance experts have long recognized that 100 percent state funding of teacher retirement is one of the biggest “dis-equalizing” elements in our school finance system: state funding of teacher retirement costs tends to benefit wealthier school systems more than needier ones. The more affluent school systems can afford higher teacher salaries and lower student-teacher ratios, and full state funding of retirement costs exacerbates the resulting disparities.

However, this is a bad time to thrust this new cost onto local budgets all at once. While state revenues have begun to recover (slowly and unevenly) from their post-recession lows, local revenues are still dropping. That’s because of local governments’ reliance on property taxes, which take longer that income and sales taxes to respond to changes in the economy.

A sudden shift of almost a quarter billion dollars in costs to local budgets this year would have just shifted bad budget choices to local government leaders. Marylanders would have been hit by even more damaging cuts on locally-funded services.

Ultimately, Maryland needs to restore the wealth adjusted per-pupil inflation increases to local school aid that were enacted in a decade ago. The “Thornton” increases have started to reduce gaps in student achievement. Maryland will need to resume its investment in students to assure that we make further progress instead of losing the gains we have made.

Senate Budget and Tax Committee Revenue Plan is Moderate and Progressive

The Senate Budget and Taxation Committee has wrapped up its work on the budget, and will recommend a balanced package of cuts and revenues to the full Senate.

Legislative staff is busy at work summarizing the committee recommendations. But we do have some key details of the revenue package.

The main revenue boost comes from adjustments to individual income tax rates. The tax rates on most income under $100,000 will increase by 0.15% to 0.20% (that is, 1/5 of 1% or less). Rates on taxable income over $100,000 will increase by 0.25% (1/4 of 1%). For single filers the full 0.25% increase starts at $75,000 of income.

The Institute on Taxation and Economic Policy estimates that taxpayers in the middle fifth of Marylanders (average income $55,000) will have a tax increase of $43 a year. Even for the top earners, the tax increases are 0.15% of income at most, after you figure in their federal deduction for state income taxes paid.

Revenue and Distributional Effects of Potential Rate/Bracket and EITC Changes

All Marylanders, 2012 income levels
(revised 3/14/12)*

2012 Income Group	Lowest 20%	Second 20%	Middle 20%	Fourth 20%	Next 15%	Next 4%	Top 1%
Income	Less Than	$24,000 –	$44,000 –	$69,000 –	$113,000 –	$222,000 –	$500,000 –
Range	$24,000	$44,000	$69,000	$113,000	$222,000	$500,000	Or More
Average Income in Group	$ 13,000	$ 33,000	$ 55,000	$ 89,000	$ 152,000	$ 319,000	$ 1,597,000
State tax impact of rate and tax credit changes (distributional figures do not include federal tax cuts from the deduction for state taxes paid)
Average Tax Change	–2	+13	+43	+77	+176	+492	+2,692
Combined state/federal impact (distributional figures include the impact of the federal deduction for state income tax paid)
Tax Change as % of Total Income	–0.01%	0.04%	0.07%	0.07%	0.09%	0.15%	0.13%
Average Tax Change	–2	+13	+39	+66	+138	+467	+2,006

Source: Institute for Taxation and Economic Policy

There were also some smaller tax increases: on cigars, on-line sales, and telecommunication companies, for example.

To offset the effect of tax increases and service cuts on working parents, the Committee recommended increasing the state’s refundable earned income tax credit.

These fair and modest increases allowed the Senate Budget and Taxation Committee to avoid catastrophic “Doomsday” cuts to local schools, college affordability, access to healthcare, local police, and more.

It also allows the state to moderate a shift of teacher retirement costs to local government budgets, and phase in the shift over four years, instead of imposing it all at once.

Now, it’s up to the full Senate to approve the plan. At the same time, the House of Delegates must devise its own budget and revenue package.

The Budget and Taxation Committee’s recommendations preserve funding that is important to Maryland’s families today and to our future prosperity. The full Senate should approve the plan, and the House should seek to make “fine tuning” improvements, not wholesale changes.

*Note: The chart was revised to reflect that the Senate committee plan calles for the 5 percent expansion of the refundable earned income tax credit to be phased in over five years. The chart now reflects the first 1 percent which would take effect for tax year 2012.

How to Avoid the Doomsday Budget

Legislative leaders have developed a “Doomsday Budget” proposal, illustrating the deep cuts needed to balance Maryland’s budget with a “cuts only” strategy. The cuts would hit local schools, access to healthcare, college affordability, local governments and many other important public needs.
 

To avoid these doomsday cuts, the legislature will need to approve some sort of general fund revenue package. Here are some of the revenue measures that are now under consideration by the legislature:

Revenue Options Currently Under Discussion
			Revenue Generated
			($ millions) *
Revenue Option	House Bill (sponsor)	Senate Bill (sponsor)	FY 2013	FY 2014
High-income exemption phase-out	87 (Administration)	152 (Administration)	$67	$46
High-income deduction limit	“	“	$129	$83
Sales Tax - Remote sellers	“	“	$20	$20
Sales Tax - digital downloads	“	“	$6	$6
Cigar and other tobacco tax	“	“	$19	$18
Corporation income tax reform - Combined reporting	941 (Ross)	269 (Pinsky)	$42	$153
Cigarette Tax **	1153 (Luedtke)	526 (Forehand)	$93	$81
Tax on Income over $1 million	784 (Ivey)	249 (Jones-Rodwell)	$146	$111
Repeal 1997 rate cut	508 (Healey)	523 (Manno)	$528	$375
* Many revenue measures will have different revenue yields in the first fiscal year due to timing effects. The FY 2014 estimate is a better measure of ongoing revenue effects.
** Estimate reflects 2011 fiscal note for FY 12 and 13.

This list is not exhaustive of all the general fund revenue measures now before the general assembly, but these seem to be some of the most-talked-about. There are also revenue measures related to gasoline, water bills, and energy bills that are not general funds, but which would be dedicated to particular purposes.
 

To avoid Doomsday budget cuts, the legislature must craft a revenue package. We expect they will consider a combination of two or more of these proposals, or some close variants.
 

In designing the package, they should look for:  

• Adequacy – the revenue package needs to be large enough to balance the budget without damaging budget cuts
• Equity – the new taxes should not be overly burdensome to low-income and working Marylanders. The state can expand the earned income tax credit to reduce the impact on these families. The Senate Budget and Taxation Committee recommended a 5 percent increase in the refundable earned income tax credit.
• Sustainability – the revenue package should help the state reduce its structural revenue shortfall in the coming years

See our latest fact sheet (A Host of Revenue Options Available to Avoid Doomsday Budget) for a more in-depth discussion of these revenue options.