This Week in MD Policy and the Week Ahead – January 24, 2014

Today was a busy week that saw the Department of Legislative Services provide its Fiscal Briefing and Governor O’Malley unveil his legislative priorities and give his final State of the State Address.

Budget

At the General Assembly’s Fiscal Briefing, Warren Deschenaux, director of the Office of Policy Analysis in the Department of Legislative Services, urged state lawmakers to be more cautious in their approach to the budget than Governor O’Malley. Deschenaux said that lawmakers should seek to craft a budget that leaves a $100 million ending balance rather than O’Malley’s suggested $30 million. The Washington Post characterized the critique of Governor O’Malley budget as narrowing Maryland’s structural deficit without raising taxes through “a large number of one-time fixes and perhaps overly optimistic assumptions.”

We released our First Look at the Maryland’s Fiscal Year 2015 Budget. The Baltimore Sun produced an infographic on revenue and spending in Maryland’s budget.

The American Federation of State, County and Municipal Employees is lobbying to remove the permanent cut in pension funding from Governor O’Malley’s budget, according to Maryland Reporter.

Following a ruling from Maryland’s highest court that poor suspects must have access to an attorney at bail hearings, the state’s judiciary has proposed streamlining the bail process. The Maryland Department of Legislative Services estimates that providing attorneys at bail hearings could cost the state $30 million per year. Yet the governor’s budget assumes that appeals of the court’s decision will be successful and that the state will not have to pay for said attorneys.

Legislative Session

Governor O’Malley announced support for a plan to increase the number of 4-year-olds who can enroll in public pre-kindergarten classes by expanding the current pre-K program to families with incomes up to 300 percent of the Federal Poverty Level (FPL) from its current 185 percent FPL threshold. Governor O’Malley’s budget sets aside 4.3 million for the plan.

The Cumberland Times-News reports that the District 1 delegation is trying to stop legislation “coming from the Maryland Department of the Environment” to require the coal-run AES Warrior power plant to invest more in reducing nitrogen oxide emissions.

The Chesapeake Bay Foundation has released a report on the damage caused by polluted runoff from paved surfaces and suggesting investments to reduce it. The CBF called on Maryland lawmakers to avoid repealing or weakening the stormwater fee as well as to approve a budget that funds the installation and maintenance of practices that reduce runoff pollution, that “should include Governor O'Malley's proposed $42 million in the 2010 Trust Fund, $36 million in additional investments in the Capital Budget, and $45 million for the State Highway Administration for Chesapeake Bay Blueprint implementation.”

The Senate has voted to give committee chairmen the ability to allow livestream broadcasting of legislative voting sessions.

Corporate Income Tax

MDCEP released our latest report on the Corporate Income Tax in Maryland and submitted testimony  in opposition to the first of several bills to lower the tax.

At Wednesday’s hearing on SB 8, the Maryland Chamber of Commerce supported a reduction of the corporate income tax, but to 7 percent over 5 years rather than the 6 percent proposed by SB 8.

The Baltimore Business Journal reports that current Maryland Attorney General and gubernatorial candidate Doug Gansler supports tying an increase in the state minimum wage to a reduction of the corporate income tax.

Minimum Wage

Governor O’Malley announced his support for legislation that would raise the minimum wage to $10.10 an hour by 2016 and index the minimum wage to inflation beginning in 2017. Other bills would do the same. On the other hand, there are also bills that would eliminate the state minimum wage and instead empower counties to set different minimums.

Senate President Mike Miller told reporters last week that it will be difficult to pass the plan and suggested a solution might be different minimums in different regions of the state, according to the Washington Post.

In a statement titled “The Dignity of Work,” the Catholic bishops of Maryland expressed their support for raising the minimum wage in Maryland, reports the Washington Post.

Health

According to the Baltimore Business Journal, the Maryland Health Connection has been more successful than the federal insurance exchange in enrolling young people. According to the Journal, residents under 35 account for about a third of enrollees in the Maryland exchange.

The Washington Post reports on the exchange between Maryland Secretary of Health and Mental Hygiene Josh Sharfstein and Congressman John Delaney on the relative merits of the Maryland Health Connection and the federal insurance marketplace, healthcare.gov.

The Senate passed a bill to allow those who were not able to enroll in health coverage through the troubled Maryland Health Connection to enroll in the Maryland Health Insurance Plan, a state run program that covers high-risk individuals and a House of Delegates committee cleared the way for the measure to move to the House floor.  As of this week, 1,284 households had enrolled, according to the Sun.

Target will no longer be offering health insurance to its part time workers. The Washington Post notes that whether this is good news or bad news depends on the circumstances of specific workers. The change is bad for workers that are satisfied with their current coverage provided by Target. But it could be good news for Target workers on the lower end of the wage scale who will receive more in subsidies to buy their own insurance as well as the 90 percent of part time Target employees that do not sign up for Target’s employee coverage that will now be eligible to purchase subsidized coverage, according to the Washington Post. 

President of Maryland Citizens’ Health Initiative Vinny DeMarco is pushing for an additional $1 tax on cigarettes to fund public health initiatives. According to Maryland Reporter, DeMarco presented evidence of public support for the measure while speaking to the press on Wednesday.

Safety Net

The New York Times reports that food banks are preparing for a cut in nutrition assistance. Maryland may escape the brunt of these cuts, at least in this round. Current negotiations in Congress are focused on the Heat and Eat program, which Maryland does not have. However, any reduction in nutrition assistance is bad news for those already struggling.

Economy

According to a study by Phoenix Marketing International, Maryland has the most millionaires per capita of any state.

Education

The Washington Post reports that community college enrollment is down 4 percent since 2012 and 6 percent since 2010. According to the Post, this follows national trends, and community college enrollment typically trends in the opposite direction of the economy.

Other Legislative Action this Week

Bills introduced

• SB 332/HB 297 - Prekindergarten Expansion Act Of 2014
• Sponsor: The President (By Request – Administration)
• Expanding prekindergarten services to specified 4–year–old children;  establishing the Prekindergarten Expansion Grant Program; identifying the purpose of the Program; requiring the Department of Education to administer the Program; requiring the Program to be a competitive grant program for specified providers; establishing specified criteria for priority consideration of grant funds; establishing specified uses for grant funds; etc.

• SB 335/HB 298 - Health Services Cost Review Commission – Powers And Duties, Regulation Of Facilities, And Maryland All–Payer Model Contract
• Sponsor: The Speaker (By Request – Administration), et al
• Authorizing the Health Services Cost Review Commission, consistent with Maryland’s all–payer model contract, to establish hospital rate levels and rate increases in a specified manner and promote and approve specified alternative methods of rate determination and payment; increasing the total amount of user fees that the Commission may assess on specified facilities; altering the contents of a specified annual report the Commission is required to submit to specified individuals and the General Assembly

• SB 360/HB 292- Natural Gas – Hydraulic Fracturing – Prohibition
• Sponsor: Senator Zirkin, et al / Sponsors: Delegate S. Robinson, et al
• Prohibiting a person from engaging in the hydraulic fracturing of a well for the exploration or production of natural gas in the State.

• Bills related to the stormwater management fee for polluted runoff

• SB 277/HB 324 – Frederick County – Stormwater Management – Watershed Protection And Restoration Program – Exemption

• Sponsors: Senator Brinkley/Frederick County Delegation
• Exempting Frederick County from the requirement to adopt a watershed protection and restoration program.
• SB 315 – Environment – Stormwater Remediation Fee – County  Tax Limitations
• Sponsor: Senator Simonaire
• Prohibiting Anne Arundel County or Talbot County, or a municipality within  Anne Arundel County or Talbot County from setting a specified stormwater  remediation fee that would generate revenues that, when combined with  county property tax revenues, would exceed the county tax limitation
• SB 316 - Anne Arundel County – Watershed Protection And  Restoration Program – Exemption (Anne Arundel  County Rain Tax Exemption Act Of 2014)
• Sponsor: Senator Simonaire
• Exempting Anne Arundel County from the requirement to establish a watershed protection and restoration program.

• SB 317 - Income Tax – Subtraction Modification –Stormwater Remediation Fee (Rain Tax)
• Sponsor: Senator Simonaire
• Providing a subtraction modification under the Maryland individual and corporate income tax for the expense of specified stormwater remediation fees; providing that the subtraction does not apply to stormwater remediation fees that are deductible from federal adjusted gross income; applying the Act to taxable years beginning after December 31, 2013

• SB 318 - Property Tax – Sunshine Tax Credit Act Of 2014
• Sponsor: Senator Simonaire
• Requiring the Mayor and City Council of Baltimore City and the governing  body of a county or municipal corporation to grant a property tax credit to offset specified stormwater remediation fees; authorizing counties and municipal corporations to determine the amount of the tax credit; requiring counties to provide a specified notification to municipal corporations before taking specified actions; providing that specified property used for specified purposes may not receive the credit; etc

• Bills related to taxation

• SB 324 – Estate Tax – Unified Credit
• Sponsor: Senator Forehand
• Increasing a specified limit on the unified credit used for determining the Maryland estate tax; and providing that the Act applies to decedents dying

• SB 365/HB 347 - Sales And Use Tax – Rate Reduction
• Sponsors: Senator Getty, et al/ Delegate Schuh, et al
• Reducing the rate of the sales and use tax from 6% to 5% beginning July 1, 2014

• SB 385 – Corporate Income Tax – Federal Repatriation Holiday
• Sponsor: Senator Brinkley, et al
• Providing a subtraction modification under the Maryland corporate income tax for specified dividends included in federal taxable income as a result of a specified repatriation holiday enacted by federal legislation; requiring the Comptroller to provide for the administration of the Act if specified federal legislation is enacted

• SB 395 - Business Relief And Tax Fairness Act Of 2014
• Sponsor: Senator Pinsky
• Altering specified fees collected by the State Department of Assessments and  Taxation for the filing of specified documents by specified corporations and  business entities; requiring specified corporations to compute Maryland  taxable income using a specified combined reporting method; requiring,  subject to specified regulations, specified groups of corporations to file a  combined income tax return reflecting the aggregate income tax liability of all  the members of the group

• HB 264 - Income Tax – Subtraction Modification – Student Loan Debt
• Sponsor: Delegate Luedtke
• Allowing a subtraction modification under the Maryland income tax for specified income of specified individuals from the discharge of student loan debt under specified circumstances; requiring an individual to submit specified documentation to qualify for the subtraction modification

• HB 276 - Estate Tax – Qualified Family–Owned Business Interests – Exclusion
• Sponsors: Delegate Afzali, et al
• Altering the determination of the Maryland estate tax under specified  circumstances to exclude from the value of the gross estate $5,000,000 of the value of specified qualified family–owned business interests; providing that the Maryland estate tax imposed may not exceed a specified amount under specified circumstances; providing for the recapture of specified Maryland estate tax under specified circumstances;

• HB 387/SB 59 - Income Tax – Subtraction Modification – Payroll Taxes On Employee Tips
• Sponsor: Delegate Conway
• Providing a subtraction modification under the Maryland individual and corporate income tax in the amount of the reduction of a federal income tax deduction for Social Security and Medicare taxes paid on behalf of employees that receive tips; and applying the Act to taxable years beginning after December 31, 2013

• HB 326 – Income Tax Relief Act
• Sponsor: Delegate Serafini, et al
• Reducing the State individual income tax rates over a 3–year period.

• HB 328 – Income Tax – Flat Tax
• Sponsors: Delegates Serafini and V. Turner
• Altering the State income tax rate to 3.5% for individuals with Maryland taxable income in excess of $30,000; altering the county income tax rate to 2.3% on all Maryland taxable income of individuals; and applying the Act to taxable years beginning after December 31, 2014.

• HB 351 - Maryland Estate Tax – Unified Credit
• Sponsor: Delegate Clagett
• Repealing a limit on the unified credit used for determining the Maryland estate tax; repealing a requirement that the Maryland estate tax shall be in effect even if the federal estate tax is not in effect on the date of the decedent’s death; repealing a requirement that the Maryland estate tax be determined without regard to a specified deduction allowed under the federal estate tax; and applying the Act to decedents dying after December 31, 2013.

• Bills related to housing

• SB 354 – Maryland Renter’s Tax Credit Program
• Sponsor: Senator Muse
• Altering the calculation of the amount of property tax relief provided to  specified renters by increasing, from 15% to 25%, the percent of rent used to  calculate the assumed property tax; altering the calculation of combined  income of a renter to increase the amount of property tax relief available;  increasing, from $750 to $1,500, the maximum amount of property tax relief  that may be provided under the program; requiring the Department of  Assessments and Taxation to establish a marketing campaign; etc.

• HB 366 – Home Act of 2014
• Sponsor: Delegate Lafferty
• Expanding the housing policy of the State to include providing for fair housing to all citizens regardless of source of income; prohibiting specified discriminatory acts based on a person’s source of income

• HB 393 - Higher Education – Loan Repayment Program For Home Buyers In Distressed Areas – Establishment
• Sponsors: Delegate Stein, et al
• Establishing the Loan Repayment Program for Home Buyers in Distressed  Areas; requiring the Office of Student Financial Assistance to assist in the repayment of higher education loans owed by specified individuals who buy homes in distressed areas of the State; establishing requirements for an applicant to be eligible for the Program; requiring the Office to establish specified regulations; requiring the Governor to include, beginning in fiscal year 2016, a specified amount in the annual budget bill for the Program. This bill requires a mandated appropriation in the annual budget bill 

Coming Up Next Week

Monday, January 27

• Final day for Governor O’Malley to Introduce his Capital Budget Bill

Tuesday, January 28

• Senate  Finance Committee hearing:
• SB 186 - Transportation – Clean Energy Loan Programs – Private Lenders – Collection of Loan Payments

• House of Delegates Ways and Means Committee hearings:
• HB 170 - Corporate Income Tax – Rate Reduction
• HB 171 - Corporate Income Tax – Federal Repatriation Holiday
• HB 199 - Corporate Income Tax – Rate Reduction

Wednesday, January 29

• Senate Budget and Taxation Committee hearings:
• SB 176 - Income Tax Credit – Agricultural Land – Diminution in Value of Real Property
• SB 185 - Transportation – Capital Projects – Life–Cycle Cost Analysis
•  199 - State Education Aid – Real Property Valuation – Tax Increment Financing
• SB 245 - Income Tax – Subtraction Modification – Toll Charges Paid by Chesapeake Bay Bridge or Hatem Bridge Commuters
•  SB 271 - Income Tax Credit – Home Instruction Expenses
•  SB 278 - Income Tax – Military Retirement Income
•  SB 371 - Income Tax – Subtraction Modification – Stormwater Remediation Fee

• House of Delegates Environmental Matters Committee hearings
• HB 11 - Environment – Bay Restoration Fund – Authorized Uses
•  HB 12 - Bay Restoration Fund – Authorized Uses – Local Entities

Thursday, January 30

• Senate Education, Health, and Environmental Affairs hearing:
• SB 151 - Administrative Procedure Act – Fiscal Impact Statements for Proposed Regulations

• House of Delegates Ways and Means Committee hearing:
• HB 54 - Motor Fuel Tax – Downward Adjustment – Decrease in Consumer Price Index

Friday, January 31

• Last day for Senators to introduce bills without being sent to the Rules Committee

Resources for Today’s Hearing on Reducing Maryland’s Corporate Income Tax Rate

Today, the Senate Budget and Taxation Committee will held a hearing on Senate Bill 8, which would reduce Maryland’s corporate income tax rate by .45% each year for 5 years, from 8.25% to 6%. We have submitted testimony opposing the bill, because cutting the corporate income tax in Maryland would harm the state’s economy and budget, and increase inequality.

Here is our recently released report on the impact of reducing the corporate income tax in Maryland, as well as a two-page Policy Snapshot that highlights the key points from the paper.

Last fall, the Department of Legislative services also released a study on the cost of a corporate tax cut in Maryland. You can also find the DLS Fiscal and Policy note on Senate Bill 8 here.

The Washington Post also published a related blog post yesterday: Want to help the middle class? Don’t kill corporate taxes

Check back here at Maryland’s Money Matters for more on the ongoing debate about corporate tax policy in Maryland.

Governor O’Malley Releases FY 2015 Budget

This morning, Governor O’Malley released his FY 2015 Budget in a speech at the statehouse. In his proposed $39 billion budget, the Governor seeks to close Maryland’s $584 million revenue shortfall with no tax or fee increases while also increasing investments in education, innovation, public safety, and healthcare.

Addressing the Gap between Revenue and Spending

To close Maryland’s $584 million revenue shortfall, Governor O’Malley’s budget seeks to close the deficit without raising taxes. Instead, 74 percent ($457 million) of the revenue is made up through spending cuts while 26 percent (163 million) comes from the sale of old helicopters and other transfers and payments. The budget also leaves $800 million (5 percent of the General Fund balance) in Maryland’s Rainy Day fund and leaves $37 million unallocated.

Over the longer term, the O’Malley administration projects that with this budget, the state will close its structural deficit by FY 2017 with a $31 million surplus.

Making Investments in Public Services and Economic Development

In addition to closing the budget gap, Governor O’Malley proposed making targeted investments in a number of areas. According to the Governor, 48 percent of General Fund spending goes to education, 25 percent to health, and 11 percent to public safety.

(Click to enlarge)

Source: The Office of Governor Martin O’Malley

The Governor’s proposal emphasizes education, and includes $6.12 billion in K-12 education (which the Governor describes as an increase of 37% since his FY 2007 budget), $4.3 million to phase in universal pre-k education by 2010, and $289 million in school construction. Finally, Governor O’Malley intends to increase the university system’s funding by 6.7 percent while capping tuition increases at 3 percent and freezing tuition at Morgan State University and St. Mary’s College. The Governor also proposes to increase funding for community colleges by $297.5 million, including a 4.9 percent increase in direct aid.

Governor O’Malley also calls for investments in innovative industries through increases in specific tax credits, including a 20 percent increase ($12 million) in the Biotech tax credit, a 33 percent increase ($4 million) in the Cyber Tax Credit, and a 12.5 percent increase ($9 million) in the Research and Development tax credit.  The Governor’s budget also proposes targeted investments in healthcare, including $13.25 million to Academic Health Centers for cancer research and $30 million for a Prince George’s County medical center.

Regarding public safety, Governor O’Malley plans to increase police aid by $67.9 million and spending on correctional facilities by $20.3 million, which includes funding for 100 additional corrections officers.

Finally, Governor O’Malley hopes to add $42.4 million to the Bay 2010 Trust Fund.

Overall, Governor O’Malley argues that the FY 2015 budget will create 48,000 jobs in areas such as school construction (7,400 jobs), Bay cleanup (280 jobs), the Rental Housing Works program (2,500 jobs), corrections (100 jobs), and transportation projects through the capital budget (16,300 transportation jobs and 21,600 additional jobs through capital spending).

Check back here at Maryland’s Money Matter for more information and analysis of the Governor’s Budget, including our Instant Analysis, which we will release on Friday, January 17.