By Rolando Garcia
ANNAPOLIS – The Senate gave preliminary approval to a $23.7 billion spending plan that trims more than $170 million from Gov. Robert Ehrlich’s proposed 2005 budget and includes a new 5-cent tax on salty snacks.
The Senate only snipped the edges of Ehrlich’s budget, which closes an $800 million shortfall mostly through tapping one-time revenue sources, reducing spending, zipping up tax loopholes and hiking fees.
Anticipating higher-than-expected costs for Medicaid, mental health programs and state reimbursements to local jails, the Senate made deeper cuts than those proposed by Ehrlich so there would be a surplus to cover those expenses.
“No area of the budget got a free pass,” said Sen. Ulysses Currie, D-Prince George’s, chairman of the Budget and Taxation Committee.
The Senate preserved the record $326 million spending increase for public schools in Ehrlich’s budget.
Final Senate approval is expected Friday.
In the House, the Appropriations Committee is set to vote on its version of the budget Friday, with it tentatively scheduled to go to the floor the following week.
The Senate also voted to impose a state sales tax on snack foods, such as potato chips, nuts and pretzels, which had been exempt since 1997.
The tax break was granted after Frito-Lay had promised to expand its Harford County plant, but the new jobs never materialized, said Sen. Patrick J. Hogan, D-Montgomery.
“(In 1997) the money was rolling in, and had the state been in the fiscal situation it is now, we would not have repealed the snack tax,” Hogan said.
The measures sparked vehement opposition from Sen. Nancy Jacobs, R-Harford, who complained the budget committee never held a hearing on the matter and that the tax could devastate the chief manufacturer in her district. The Frito-Lay plant employs nearly 400 people.
Frito-Lay had only delayed its expansion because it was still working with Harford County officials to get water and sewer services for the new plant, Jacobs said.
“If (the budget committee) had held a hearing, they would have known that,” Jacobs said. “This caught us completely by surprise.”
Sen. Andrew Harris, R-Baltimore County, a physician, objected to grouping nuts, which provide important nutrients, with other junk foods such as potato chips and pork rinds.
There was no wiggle room in the Senate’s carefully balanced budget, Hogan said, and the $17 million in new revenue from the snack tax was essential. The most hotly debated portion of the budget package passed 25-21.
Ehrlich opposes the snack tax and will try to remove the provision from the budget as it works its way through the House, said Neil Bergsman, budget analysis director for the Department of Management and Budget.
“The Senate did a very capable job on the spending side,” Bergsman said. “The problems are on the revenue side.”
The $169 million surplus in the Senate’s budget suggests the snack tax is unnecessary, Bergsman said.
The Senate also approved Ehrlich’s bill to close the so-called Delaware loophole. Some corporations operating in Maryland have avoided state business taxes by setting up subsidiaries in Delaware to which they sell patents, trademarks and copyrights. The parent company then pays its own subsidiary hefty fees for the use of this intellectual property, reducing its taxable Maryland income. Because Delaware does not tax intellectual property, that income is not taxed there, either.
Closing the loophole will yield more than $90 million in new revenue annually.
Another $38 million in revenue approved by the Senate comes from Ehrlich’s proposal to extend the county portion of the state income tax to non-residents working in Maryland.
But the Senate rejected Ehrlich’s bid to impose a $1,000-per-bed fee on nursing homes. Senators doubted the administration’s contention that the federal government would reimburse the nursing homes so that the cost would not be passed on to patients.
The Senate’s budget raises $227 million in new taxes and fees, compared to $187 million in Ehrlich’s original budget request.
The Senate restored $30 million to a local aid program that Ehrlich cut. The grants are intended to offset the loss of property tax revenue by mandated lower property tax rates near electric power plants. Anne Arundel, Calvert and Prince George’s Counties will receive the bulk of the funds.
The spending cuts amounted to small nips to most agencies, but some of Ehrlich’s pet programs fell under the Senate’s budget knife.
Project RESTART, a criminal rehabilitation program highly touted by Ehrlich and prominently featured in his State of the State address, was pared back from $3 million to a $1 million pilot program in Baltimore City.
Although the Senate approved a balanced 2005 budget, the state will be facing a $1.2 billion shortfall next year, which could balloon to $2.2 billion by 2009. – 30 – CNS-3-17-04