Special Session Report

From Delegate Brian J. Feldman

Chair, Montgomery County House Delegation

 Dear Friend,

The Governor called the Maryland General Assembly into a Special Session which convened on October 29^th and ended on November 19^th to address the state's budget deficit for fiscal year 2009 and beyond.  I wanted to provide you with information about the Maryland Budget, the Deficit, the Governor's deficit reduction proposal, and the legislative package ultimately passed by the General Assembly during the Special Session.

As Chair of the Montgomery County House Delegation, I worked diligently over the past three weeks coordinating with my colleagues in both the House and Senate to ensure that our County's interests were protected.  Although I did not like every aspect of the package which passed, I believe we passed a fair long-term solution to the structural deficit while preventing many of the draconian cuts to important priority items that are critical to the future of our state.

During the legislative session, my colleagues and I:

• Cut spending by $550 million on top of $280 million in cuts earlier this year.
• Protected our investment in education and helped keep college tuition affordable.
• Made our tax system fairer by providing an income tax cut for middle class families to offset a penny sales tax increase and closed many corporate loopholes.
• Settled the slots issue that has gridlocked our government for years by letting the fate of slots be decided by a popular vote.  The final decision on slots will be made by the people in a referendum question to appear on the November 2008 ballot.
• Invested in transportation/transit. Passed a law to make healthcare more affordable for small businesses and to provide coverage for 100,000 more Marylanders.
• Created the Chesapeake Bay 2010 Trust Fund to take steps needed to save the Bay.

Please take a minute to read the information below, and if you have any comments or questions, please do not hesitate to contact my office.

The Maryland Budget and the Budget Shortfall

Maryland Budget Revenue

Maryland spends approximately $30 billion annually with 51% of the total state budget being dedicated to specific government expenditures such as transportation and higher education. The General Fund, which represents the other 49% of the Budget, is used to pay for the day-to-day operations of the state, including maintaining our parks, licensing businesses, and funding K-12 public education.  

With regard to the General Fund, education and Medicaid account for over half of the general fund budget.  Specifically, 43% goes toward K-12 and higher education.   33% goes toward staffing state agencies and upkeep of state lands, including staffing and maintaining state parks and other public facilities.  Of the money invested in state agencies, a majority goes to public safety, corrections, the judiciary, mental hygiene, developmental disabilities, and other health related programs. 15% of the General Fund goes to Medicaid and 9% is spent on other state projects.   

Why did we have a budget shortfall?
Maryland faced a budget deficit that has been 10 years in the making and is largely attributable to three factors.  A tax cut passed in the late 1990s eliminated almost $1 billion a year in revenue.   In 2002, landmark legislation called "The Thornton Bridge to Excellence Act" (Thornton) was passed which mandated an increase in state spending for our public schools by $1.3 billion a year.  Finally, Medicaid costs continue to escalate at a rate of about 10% a year and the state is obligated to pay 50% of those costs.  After several years of delays and short-term fixes, Maryland's structural deficit could no longer be ignored or swept aside.

The "Cost of Delay" Budget

If a consensus had not been reached, the Governor would have been forced to cut more than $780 million from the Budget that would have significantly impacted local jurisdictions and government programs.  The Governor made public a proposed budget prior to the special session called the "Cost of Delay" Budget that would have been implemented had we not found a way to offset the deficit.  Among other things, these cuts included such items as closing state parks, cutting funding for public nursing homes and cuts to our community colleges. Set forth below is a chart that outlines the proposed budget cuts. 

To review the Governor's proposed cuts in more detail, please visit this link: The "Cost of Delay" Budget

RESULTS OF THE SPECIAL SESSION

Budget Cuts By the General Assembly

As part of our efforts to address the structural deficit, the General Assembly passed "The Budget Reconciliation Act of 2007" which cut $4 million from General Fund Appropriations for the Department of Human Resources and Maryland Technology Development Corporation.  We also implemented a hiring freeze, effectively eliminating unfilled positions in the Executive Branch. As a result of these staffing cuts, General Fund expenditures would decrease by $7.6 million in fiscal 2008 and by $15.2 million in fiscal 2009.  The bill also slowed the growing expenditures on education and other public programs.  In sum, all of the proposed cuts combined trim spending in next year's budget by about $550 million.  These cuts are on top of $280 million in cuts approved earlier this year.

Investing in Higher Education

Maryland is home to the most educated workforce in the nation which is one reason Maryland's economy remains stronger than the nation's economy as a whole. A well-educated workforce is critical to our state's economic vitality, yet middle class families still have to struggle to afford a college education for their children. Recognizing the need to keep a college degree within reach of all Marylanders, the legislature created a Higher Education Investment Fund during the Special Session. This fund is the first dedicated funding source for higher education in state history, and will be used to drive innovation and ensure competitiveness by keeping tuition affordable and investing in world class facilities on our university and community college campuses. 

Promoting Fairness in the Income Tax Code

To protect our priorities, the legislature enacted significant tax reform to make the state's income tax system fairer by closing corporate loopholes and providing an income tax cut for middle class families, which will offset a 1 cent sales tax increase that was also passed.

As a result of a tax cut passed in 1997, all Marylanders currently pay a flat 4.75% on income over $3,000. Working off of a proposal from the Governor that would have raised the state income tax rate to as high as 6.5%, the legislature raised the income tax to 5% on net taxable income over $150,000 for single filers, $200,000 for joint filers, 5.25% over $300,000 for single filers, $350,000 for joint filers, and 5.5% over $500,000. (Note: these net taxable income figures represent wages earned after all deductions are included, which means the actual gross income levels at which they take effect are approximately $25,000 to $50,000 higher). 

The legislature also enacted an income tax cut for the majority of taxpayers by raising the personal income tax deduction from $2,400 to $3,200 for single filers earning under $100,000 and $150,000 for joint filers.   The Governor's office estimates that up to 96% of tax filers will experience a tax cut under the new structure. This will offset the penny increase in the sales tax and its impact on middle and low income families, while still allowing us to protect investments in education, transportation, healthcare, public safety and the environment. 

Putting Slots Issue to a Ballot Referendum

Finally, I continue to be opposed to the implementation of slot machine gambling in Maryland.  In 2005, I voted against the stand-alone slots bill that came before the House of Delegates, the only time before this session I've had an opportunity to cast a vote on the subject.   However, after five straight years of debate on the issue in the General Assembly, we have reached a stalemate and the time has come to put the issue to rest by allowing the voters to weigh in on the issue.  In this way, we can move forward to address other pressing issues of our State.  According to a recent Gonzalez poll, 84% of Maryland voters want their voices heard on this issue in a referendum question appearing on the ballot.  They will get their chance in November 2008.

I hope that the citizens of Maryland ultimately vote down the referendum as the last six states have done that have had the chance to vote on the issue.  However, it should be noted that if the referendum passes, we guaranteed during the Special Session that at least 48.5% of the revenue will go to an education trust fund to pay for the Thornton education plan.

Regional Competitiveness-Sales/Corporate Taxes

The changes to the state's sales and corporate tax rates keep Maryland regionally competitive. The new sales tax rate of 6% remains lower than New Jersey (7%), identical to Pennsylvania and West Virginia, and competitive with the District of Columbia (5.75%) and Virginia (5%).  It is important to note that both West Virginia and Virginia apply a sales tax to groceries, which Maryland does not.  In addition, Maryland does not apply the sales tax to prescription and non-prescription drugs like many other states.  As discussed below, half of the sales tax revenues is dedicated to transportation and transit.

The new corporate tax rate (8.25%) remains lower than Pennsylvania (9.99%), the District of Columbia (9.975%), New Jersey (9.0%), West Virginia (8.75%), and Delaware (8.7%).  

Investing in Transportation/Transit

The state has an estimated $40 billion in unmet transportation needs.  The business community came to the legislature to advocate for an increase in the gas tax to generate funding for transportation and transit projects – funding business leaders believe is critical to protect our economic competitiveness.  People are already paying more for gas, which is why the legislature rejected raising the gas tax and instead dedicated half of the sales tax increase and the entire titling tax increase to transportation.  This will generate over $420 million a year in new revenue for transportation and transit projects statewide.  Much of that funding will go to Montgomery County-$250 million over the next three years for critical priorities including engineering for the Purple Line, the Corridor Cities Transitway connecting Shady Grove to Clarksburg, and $50 million dedicated for annual funding of Metro, which could help unlock matching funds from the federal government for the transit system over the next decade.

Health Care Reform

Approximately 800,000 Marylanders (14% of the population) are uninsured. Nearly 90% of these people represent working families, and young adults run the highest risk of being uninsured. From 2000 to 2005, the number of Marylanders with employment-based and private coverage decreased, while the number of uninsured increased by 23%. Since 1990, daily emergency room visits have increased by 55%.  The largest numbers of ER visitors are uninsured people, and 1/3 of these visits could have been handled by a primary care physician.  The cost of these visits ends up being absorbed by Marylanders who have health insurance in the form of increased health insurance premiums.

One of the major successes of the Special Session was to expand health insurance coverage to more than 100,000 uninsured low-income citizens who earn under $23,000 a year.  In addition to expanding eligibility for Medicaid, the health insurance program for the poor, the new law extends help to an estimated 37,000 small businesses to offset the cost of offering health insurance to their employees. 

Dedicated Fund to Clean up the Bay

For sometime now, the Chesapeake Bay has been listed on the Environmental Protection Agencies "dirty waters list."  Dirty water in the Chesapeake Bay and its tributaries poses a public health threat that needs to be addressed and the longer we wait the more it will cost to clean up.  Seven years ago, Maryland signed the Chesapeake 2000 Agreement, a commitment to reduce 20 million pounds of pollution per year from entering the state's waterways by 2010.  The legislature has taken critical steps to reduce pollution, with the Chesapeake Bay Restoration Fund in 2004, and the Agricultural Stewardship Act and Healthy Air Act in 2006.

The steps above move Maryland in the right direction, but, at its current pace, the state will not reach the goals established in the Chesapeake 2000 Agreement.  That is why the legislature established the Chesapeake Bay 2010 Trust Fund during the Special Session, which will provide a dedicated funding source to expedite pollution reduction programs in the Chesapeake and Atlantic Coastal Bays and Patuxent River.

CONCLUSION

In the end, we made many difficult decisions that will enable our state to make progress on many important priorities: to improve public safety and public education; to invest in our transportation infrastructure;, to provide a healthy Chesapeake Bay; and to expand access to affordable healthcare and higher education. While I don't necessarily agree with all of the decisions made during the Special Session, we have proven that Maryland's government can come together and find consensus so that we can move our state forward.  Thank you for your support during this difficult process. 

Regards,