- The Washington Times - Tuesday, January 20, 2004

Maryland Gov. Robert L. Ehrlich Jr. is expected to introduce a budget today that has spending cuts and one-time fixes to close a $786 million shortfall and has enough money remaining to start repaying millions borrowed last year from the Transportation Trust Fund.

Mr. Ehrlich balanced the books this year without major tax increases or anticipated revenue from his plan to legalize slot-machine gambling at horse tracks, though both issues still are likely to dominate the budget debate in the Democrat-controlled General Assembly.

The Republican governor is expected to introduce a slots bill in the Senate in the coming weeks that closely resembles the plan last year to give the state as much as $800 million a year from 10,500 one-armed bandits at four Maryland tracks.

Despite no major new revenue source, the governor’s $22 billion budget proposal is expected to include big funding increases for public schools and Medicaid, and the creation of a Cabinet-level office to help the disabled.

“There is a historic increase in public school funding in our budget,” said Mr. Ehrlich, who otherwise declined to discuss budget details yesterday.

Public schools are expected to get more than $300 million in additional funding through the Thornton plan, a legislative mandate to erase funding disparities between wealthy and poor public school districts.

The districts expected $353 million, but the governor is likely to cut the $45 million from discretionary funding earmarked for larger school districts such as Montgomery County and Baltimore.

Medicaid is expected to get hundreds of millions more, though the extra money is mostly from the program’s natural growth rate, administration officials said.

The governor’s plan to repay some of the $300 million he borrowed from the Transportation Trust Fund to bail out the state last year was unexpected. The fund pays for highway construction and road maintenance.

“There will be some money in to start paying it back, unless something happens between now and tomorrow,” said House Minority Leader George C. Edwards, Western Maryland Republican.

Replenishing the fund should quell some criticism directed at Mr. Ehrlich for raiding it to help close the $2 billion shortfall left by Gov. Parris N. Glendening, a Democrat.

The barbs came from within Mr. Ehrlich’s party and from Democrats such as Montgomery County Executive Douglas M. Duncan, a potential gubernatorial challenger in 2006.

In a repeat of the 2003 budget, cuts will be made to state agencies this year. The governor is expected to present a mix of reduced funding and smaller spending increase than anticipated.

Senate Minority Leader J. Lowell Stoltzfus, Eastern Shore Republican, described the governor’s spending cuts as “very significant,” but declined to elaborate.

Some of the cuts probably will be recouped by imposing higher user fees on residents, said sources familiar with the plan.

The governor’s budget team has been considering a variety of plans for one-time cash infusions and more dependable sources of new revenue.

One continuing revenue source under consideration is additional taxes for people working in Maryland but residing in other states, particularly those without income taxes. The new tax, which would impose a county or city piggyback tax upon the nonresident workers, would require legislation to be enacted.

Among the quick fixes is a plan to take $160 million from a reserve fund of unclaimed county income-tax rebates, said lawmakers and administration officials. The money would be split with the county governments but still give $80 million to the state.

The governor’s budget also is expected to include revenue from increased efforts to collect as much as $100 million in back taxes from more than 70 corporations with home offices established in Delaware to avoid Maryland corporate taxes.

The money would be split between the general fund and the Transportation Trust Fund, said an administration official familiar with the plan.

The comptroller’s office told the Senate Budget and Tax Committee yesterday that six holding companies in Delaware have agreed to pay the back taxes by January 30. The companies also agreed to pay interest and a 2 percent penalty, instead of the past due amounts and a 25 percent penalty after the deadline, said spokesman Michael D. Golden.

Nonetheless, the back taxes are another one-time fix for the state’s fiscal woes. If Maryland can collect the money this year, the same corporations next year would owe an annual tax closer to $20 million.

Mr. Edwards, the House minority leader, said the governor’s budget is a solid plan for surviving another lean year. However, the deficit will continue to squeeze Maryland until a new revenue source is tapped, he added.

Without higher sales tax or income tax, which Mr. Ehrlich opposes, or slot machines at race tracks, which House Democratic leaders oppose, there will not be enough money in coming years to pay for the Thornton initiative or other spending mandates.

• Robert Redding Jr. contributed to this report.

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