Maryland's New GOP Governor Pushes Tax Relief in State of the State
By Erin Cox, Timothy B. Wheeler and Michael Dresser
Gov. Larry Hogan used his first State of the State address to follow through on a campaign promise, vowing Wednesday to push for tax relief for small businesses, motorists and some retirees, and to seek repeal of a controversial stormwater fee.
"The people of Maryland simply cannot afford for us to continue on the same path of more spending, more borrowing, more taxes and politics as usual," Hogan told the General Assembly.
He did not recommend an across-the-board tax break that would affect most Marylanders, instead suggesting cuts in four areas that would have relatively minimal impact on state revenue in the short term. The proposals are likely to face stiff questions from Democrats, who control the legislature.
Hogan said he would pursue legislation to repeal the so-called "rain tax" levied by Baltimore and other large jurisdictions to pay for projects to keep polluted stormwater runoff from reaching the Chesapeake Bay. He proposed a tax exemption on the first $10,000 of personal property owned by small businesses. And he said he would seek to exempt retired military, police and firefighters from paying taxes on their pensions.
The new Republican governor also pitched an elimination of automatic increases to the state's gas tax, which under a recent state law are scheduled to rise with inflation. Hogan called the tax regressive, and said elected officials should be required to cast a vote every time a tax is raised.
"Marylanders deserve the transparency to know how their elected leaders vote every time the state takes a bigger share of their hard-earned tax dollars," Hogan said.
The tone of Hogan's speech rankled many Democrats, who bristled at his characterization that residents are abandoning the state and that Maryland desperately needs a new direction.
"A lot of people took offense to the speech because they worked hard to make Maryland great," said House Speaker Michael E. Busch of Anne Arundel County. "You campaign in slogans, but you have to govern with the facts."
An agitated Senate President Thomas V. Mike Miller labeled Hogan's address "a campaign speech" and said he was disappointed by the tenor and substance of the governor's remarks.
"There's a lot of promises he made he knows he can't keep," the Prince George's County Democrat said. He said some of Hogan's proposals, including repeal of the stormwater fee, are not possible.
As Del. Dereck E. Davis of Prince George's put it: "If I didn't know any better, I'd think Maryland is pretty much a hellhole that nobody wants to live in and the governor is going to save us all."
The first two weeks of Hogan's tenure have been marked by debate over his proposed budget, which grew slightly from the current budget but trimmed funding in some areas under formulas that would have sent more money to education and Medicaid. He also said he would cancel a state employee pay raise after the first six months.
Hogan defended his spending plan Wednesday.
"This budget sends a clear and important message that the days of deficit spending in Maryland are over," he said. "Before I became governor, increases in spending were promised that simply could not be kept. If ever Maryland needed a dose of honesty, it's now."
Democratic aides estimated that Hogan's proposed tax breaks would cost up to $30 million a year, based on previous legislative analyses of similar proposals. Hogan's staff pegged the cost at $27 million. Maryland's budget is roughly $39 billion.
Republicans, who spent much of the speech on their feet applauding as Democrats remained glued to their seats, praised Hogan for his straight talk and said it echoed what they hear in their districts.
"It's a balanced, holistic approach to the state of Maryland. He talked about every single [issue] that voters are about," said House Minority Whip Kathy Szeliga, a Harford County Republican.
Szeliga was especially pleased with Hogan's proposal to exempt the first $10,000 of small businesses' personal property from property taxes paid to the counties -- sparing an estimated 70,000 from having to file returns. She said Hogan plans to appropriate $6.8 million to reimburse counties for the lost revenue.
"He hit the points I was hearing from folks back in Frederick County when I was knocking on doors," said Republican Sen. Michael Hough.
Senate Minority Leader J.B. Jennings, a Baltimore County Republican, said the 14-member GOP caucus will be solidly behind the governor's agenda.
"He's pulling the Band-Aid off all at once. Let's get it done. It's painful, but we have to do it," he said.
Hogan acknowledged that he and the Democratic leaders of the General Assembly are likely to disagree, and he asked for their help to find common ground.
"I'm sure we will disagree on a few points in the coming weeks," he said, drawing laughter.
One area on which they are likely to clash is transportation. Hogan's proposal to stop automatically increasing the gas tax to match inflation would cost the state's Transportation Trust Fund a projected $275 million in revenue over the next four years, according to the state Transportation Department. At the same time, Hogan wants to earmark more money from the fund to the counties for their road repairs -- a proposal that could divert $400 million a year from state projects by 2024.
If approved, Busch said, the plan would guarantee the demise of Baltimore's Red Line and Washington's Purple Line light rail projects, which would require billions in state spending for their combined $5 billion cost. "That is the death knell for those projects," he said.
Donald C. Fry, president of the Greater Baltimore Committee, said he was pleased with many of the governor's proposals, including tax relief for small business. However, he said Hogan's plans for the gas tax raise concerns that Maryland's transportation funding could fail to keep pace with inflation, as it did before the legislature adopted indexing in 2013.
"There's no doubt there's going to be less money in the trust fund if these take place," Fry said.
One of the governor's proposals with broad appeal is the tax exemption for military and public safety workers' pensions, which he would phase in over four years. It would cause $12 million in lost revenue next year.
Much of Hogan's address echoed themes from his campaign stump speech, which helped propel him to an upset win over Democrat Anthony G. Brown in November.
Hogan promised to make improving the state's business climate the top priority of his administration, saying the state "is simply not as strong as it could be -- or as it should be. We have a lot to do, to get Maryland back on track and working again."
He offered few specifics on his plans to improve the business climate beyond the tax break for small businesses. He pledged to introduce legislation to make it easier to open charter schools, as well as a tax break for people who donate to private and religious schools. And he suggested that the state should replenish its public campaign financing fund, which he used for his campaign, by restoring a voluntary check-off for taxpayers. He also said he'll appoint a panel to suggest a new way to draw congressional boundaries, saying Maryland's districts are among the most gerrymandered in the nation.
Common Cause Maryland welcomed both proposals.
"We agree with the governor that people feel a real disconnect between Annapolis and the rest of Maryland, and we believe that special-interest influence in elections and a broken redistricting process are fueling that divide," the watchdog group said.
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