Special Session 2007

The 2007 Special Session called by Governor O’Malley to address the structural deficit has ended. Well over two thousand citizens called, e-mailed, faxed, or wrote to me sharing their thoughts, concerns, and ideas for solutions to the State’s and our problem. I want to thank each one for taking the time to become involved with the process. I value your input and suggestions and appreciate the role you play in helping to shape my decisions. Again, thank you.

Working to solve our deficit required numerous hours of testimony and floor debates. Though at times a laborious task, I believe it was well worth the effort. As fellow Marylanders, you deserve no less. And while some of the final decisions may not be what some hoped for; a worse option would have been to do nothing at all. This option, of course, was not acceptable; and therefore some difficult decisions had to be made.

I, like you, have read the press coverage and seen the news programs on television, but often the full impact of the decisions is not detailed in these reports. I would like to share with you information I have received on the ramifications of the legislation. As always, I hope to bring your government closer to you and always welcome your comments.

MANAGING THE BUDGET

Barred by the constitution from adding to the state budget, the legislature has historically played a key role in containing spending. During the past four years, the legislature cut over $1 billion from the state budget and eliminated over 3,000 vacant positions from the state workforce. This year, Governor O’Malley introduced a budget during the regular session with a lower growth rate than 9 of the last 10 budgets, and the legislature cut an additional $228 million without affecting core services. During the special session, the legislature cut another $550 million. Taken together, the legislature has cut over $750 million from the state budget since January.

INVESTING IN TRANSPORTATION

The state has an estimated $40 billion in unmet transportation needs, and that number will grow as nearly every region in the state experiences growth associated with BRAC. Many citizens from throughout the State came to the legislature to advocate for an increase in the gas tax to generate $600 million for transportation projects. But because people are already paying more for gas, the legislature rejected raising the gas tax and dedicated half of the sales tax increase and the entire titling tax increase to transportation needs. This will generate over $400 million a year for transportation projects statewide, dedicated to preserving our existing infrastructure.

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, $50 million from the corporate tax increase, is the first dedicated funding source for higher education in state history, and will be used to keep tuition affordable and to build world class facilities on our university and community college campuses.

PROTECTING THE CHESAPEAKE BAY

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. These steps move Maryland in the right direction, but, at its current pace, the state will not reach the goals established in the Agreement. That’s why the legislature established the Chesapeake Bay 2010 Trust Fund, which will provide funding to expedite pollution reduction programs in the Chesapeake and Atlantic Coastal Bays and Patuxent River, to promote a cleaner and healthier environment for all Marylanders. The Chesapeake Bay Trust Fund will receive monies from the General Fund, primarily funded from an increase in the rental car tax.

PRIORITIZING HEALTHCARE

Approximately 800,000 Marylanders are uninsured. Nearly 90% of these people represent working families and young adults. From 2000 to 2005, the number of Marylanders with employment-based and private coverage decreased, while the number of uninsured increased by 23%. That’s why the legislature took the first step toward confronting a lack of access to medical care in Maryland. Over five years, the Working Families and Small Business Coverage Act will provide coverage to more than 100,000 uninsured who earn under $23,000 a year, and extends subsidies to as many as 37,000 small businesses to help offset the cost of offering health insurance to employees. The cost of this proposal will be covered by transfers from the General Fund, with revenue raised by the increase in cigarette tax to $2 per pack.

PROMOTING FAIRNESS IN THE TAX CODE

To protect our priorities, the legislature enacted significant tax reform to make the state’s tax system fairer by closing corporate loopholes and providing an income tax cut for middle class families, which will offset the penny sales tax increase. As a result of a tax cut passed in 1997, all Marylanders pay a flat 4.75% on income over $3,000. The legislature raised the income tax to 5% on net taxable income over $150,000(single filer)/$200,000(for couple), 5.25% over $300/350K, and 5.5% over $500K. (Note: these net taxable income figures represent wages earned after all federal taxes and deductions, which means the actual income levels at which they take effect are approximately $25 – 50K higher, depending on income level).

The legislature also enacted a tax cut for the majority of taxpayers by raising the personal income tax deduction from $2,400 to $3,200 for filers under $100/150K. In perspective, there were 2.7 million returns filed in 2005. Of those returns, 0.6% were over $500K, 0.8% were between $300K and $499K, and 4.4% were between $150K and $299K – so only 5.8% of Marylanders will experience any tax increase on their income above the $150/200K threshold. Conversely, the more than 2.3 million filers who earned less than $100K will receive a break on their income taxes.

ENSURING REGIONAL COMPETITIVENESS

The changes to the state’s tax system keep Maryland regionally competitive. The new sales tax rate (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%). Both West Virginia and Virginia apply a sales tax to groceries, which Maryland does not. 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%).

PUTTING SLOTS TO REFERENDUM

In addition to passing legislation that addresses our budget shortfall, the legislature debated slot machine gambling. Two bills were passed – one to put the issue on the November 2008 ballot to amend the constitution and another to define the regulatory structure necessary to control gaming if the voters choose to allow it in Maryland. These are very complicated bills and will require a good deal of education before the voters can truly decide this issue.

Because this Referendum will be changing our Maryland Constitution, it is important that each of us understands all of the provisions contained in this question. These provisions are complex and I am working on an additional newsletter outlining the details which I hope to send to you soon.

I hope this overview has been helpful and invite you to contact me with any specific questions you may have.

Again, thank you for all of your continued support and interest.

Sincerely,

Peter F. Murphy

Charles County, District 28