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Hogan Still Working Toward Change in Budget Squeeze

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Where Jim Rouse’s Downtown Columbia was in what some people still like to call the Rouse Building, overlooking Lake Kittamaqundi — above where the dining tables are in the new Whole Foods store — he had a simple poster of lemons that depicted the old saying: “When life gives you lemons, make lemonade.”

Larry Hogan was a real estate developer on a much smaller scale, but he appears to operate by the same saying. As governor, he’s got a lot of lemons to work with in a legislature overwhelmingly dominated by Democrats. He’s tried to put a good face on his relations with the Democrats, after a rocky start when they felt he was blaming them for all of Maryland’s economic ills (which he was, and they didn’t like it).

As we go to press, there are still 10 days left to go in the legislative session and the governor is coming up short on his legislative agenda. So, he’s making the best lemonade he can.

“Overall, I’m pretty pleased that we’re making progress,” he said in a WBAL Radio interview on March 31. “We’re pleased that we’ve made progress, and we’ve at least changed the dialogue. The good news is that they haven’t been pushing tax increases for the first time in a decade.”

School Funding, Pay Hikes

On the budget, the General Assembly has restored education funding to the levels mandated by law, which Hogan had trimmed. Even Allan Kittleman, Howard County’s new Republican county executive, had urged him to do just that.

A cost-of-living increase for state employees will become a permanent part of their base salaries. Hogan wanted to make it a one-time bonus, essentially cutting their pay come July. State workers still won’t get step increases based on length of service, while many teachers will see pay hikes they’ve negotiated with local boards of education.

To fund the pay hikes, the legislature cut $75 million from a supplemental payment into the state employee pension system that was agreed to when teachers and state employees had to up their pension deduction from 5% to 7% of their salaries in 2011. Hogan is unhappy with that move, saying the pension system was “robbed.” However, the state will still put almost $1.5 billion into the retirement fund in fiscal 2016, and that will go up to $1.7 billion the following year, even while the state uses a different method to calculate its annual contribution.

The bond rating agencies have long complained about Maryland’s under-funded pension system. Lawmakers are hoping they won’t be upset with the reduction, which has happened every year since the promise was made.

As submitted, Hogan’s $40.7 billion budget proposal cut the structural deficit in his first year. Structural deficits occur when mandated spending, such as school aid, exceeds expected revenue.

Hogan wanted spending to match revenues for at least three years. As amended by the House and Senate, the state budget gets to 74% of that goal, perhaps higher. Most of the past tax hikes Hogan has railed against were designed to “cure” the structural deficit, but they never did.

Waiting for Tax Relief

Hogan is most unhappy about the lack of progress on his proposals to cut taxes. “We’re not going to reach any kind of budget agreement unless we do have tax relief,” Hogan said.

Hogan’s own bill to repeal the “rain tax” was killed, but Senate President Mike Miller came up with a plan that removes the mandate for a stormwater remediation fee in 10 counties. Hogan said he doesn’t care whose name is on the bill, and is happily taking credit for this key part of his legislative agenda.

But under the bill, which won unanimous approval in the Senate, the counties and their taxpayers are hardly off the hook. They must come up with a plan for reducing polluted stormwater runoff, as the federal EPA required, and they must have a specific plan for how they pay for it. The state will hold hearings on these plans.

So while the rain tax would be repealed, there may be no immediate relief for taxpayers in Howard and Anne Arundel counties. There’s no indication yet if the House of Delegates will go along with the Senate bill.

Miller and the Senate Budget and Taxation Committee, chaired by Howard County’s Ed Kasemeyer, also acted on some of Hogan’s fairly modest proposals for tax cuts. But instead of giving him half of the loaf he asked for, they gave him just a slice.

Two Exemptions

Hogan has proposed eliminating the personal property tax on businesses with less than $10,000 worth of physical assets. This would only cost the counties that charge this tax, including Howard and Anne Arundel, about $7 million. The proposal is as much about relieving these small businesses from the hassle of the paperwork figuring out the tax.

The committee delayed the plan for at least a year, and asked the State Department of Assessments and Taxation to do an audit to see if it was really collecting the full amount of tax that was due from larger businesses.

A proposal to totally exempt all military pensions from taxes was replaced with a plan to increase the current exemption of $5,000 in retirement pay to $10,000. This tax exemption for military retirees has passed the Senate in past years, but died in the House Ways & Means Committee.

The Hometown Heroes Act, a bill to exempt up to $29,000 of the pensions of police, firefighters and other first responders, was defeated based on its cost — $3 million next year, rising to $11 million in fiscal 2020. This applies to any first responder retiring over age 50.

In Maryland, anyone over 65 has a state income tax exemption on pension income up to $29,000, the maximum Social Security benefit.

Gas Tax Hikes Stay

The Hogan proposal that would have given the most relief to average taxpayers is going nowhere. His plan to stop automatic gasoline tax increases passed two years ago was stripped from the legislation, but the committee did vote to limit increases triggered by the Consumer Price Index (CPI) to 3%, rather than the 8% cap in current law.

With inflation still under control, the CPI is not expected to go above 2.5% in the near future, a legislative analyst told the committee.

“It goes up, but it never goes down,” said Sen. George Edwards (R-Garrett). But he conceded the new CPI cap “is better than what’s in there.”

Hogan had also proposed tax credits for businesses who contribute to private and public schools. It’s a measure that’s been proposed for a number of years and has actually passed the Senate before, but it has always died in the House committee. There is no sign it will move out of committee this year.

Hogan’s major agenda item not related to taxes or spending revamps Maryland’s charter school law, making it easier for private groups to set up alternative public schools. He would remove requirements that teachers be certified the way they are for standard public schools and remove the provision that they be covered by union contracts.

The state teacher’s union, the Maryland State Education Association, is vehemently opposed to the changes, and their allies have been working to gut the bill. “The only people opposed to it are in the pocket of the teachers union,” said Hogan.

Yet, despite all the lemons thrown at him, Hogan can still taste the lemonade.

“There’s naturally going to be some friction, but I think it’s gone much more smoothly than most people would have expected,” Hogan said. “Most people do believe that we’ve got to try something different.”

Those people don’t make up a majority of the legislature.