2010 Legislative wrap-up: Hoping Band-aids are enough 

Posted: 7:23 pm Thu, April 15, 2010
By Nicholas Sohr
Daily Record Business Writer

ANNAPOLIS — Maryland lawmakers began the 2010 session in January confronted with a budget bleeding revenue and an economy reeling from a recession.

With statewide elections looming in November, the order of the day became triage for the worst symptoms — unemployment and foreclosure. Prescribing Band-Aids for some issues and painkillers for others, many in Annapolis clung to one overriding hope: that the short-term fixes would be enough to sustain the state until better times.

“To make progress in the most difficult of times, that’s what this General Assembly session has been about,” said Gov. Martin O’Malley, a Democrat, at a bill-signing ceremony less than 12 hours after the session came to a close at midnight Monday.

To some, however, the progress touted by O’Malley came at the expense of the state’s future well-being.

Taxpayers “should be very worried because we haven’t done enough to cut the budget,” said Senate Minority Leader Allan H. Kittleman, R-Howard and Carroll. “They [Democrats] will raise taxes next [year] if they continue to have such a large majority.”

That message has been echoed by many Republican lawmakers, who are outnumbered nearly 3-1 in the State House.

“The real issues of this legislative session were fixing Maryland’s spending problems so that we don’t have to go back to the taxpayers,” said Del. Anthony J. O’Donnell, Kittleman’s counterpart in the House of Delegates. “We did not do that.”

In constructing his $32 billion budget, O’Malley employed a mix of spending cuts and one-time accounting maneuvers to cover an estimated $2 billion revenue shortfall next year. Lawmakers approved raids on a host of special accounts to prop up the state’s general fund, from the $85 million taken from the University System of Maryland to the $9,566 taken from the State Board of Morticians and Funeral Directors.

“There are still going to be budget issues we have to look forward to [next year],” said Greater Baltimore Committee President and CEO Donald C. Fry. “They’re going to be both in the short term and structural over the long term.”

Republicans and Democrats alike avoided tax increases this session, citing economic and political factors. A proposed dime-a-drink bump in alcohol taxes, which haven’t changed in more than a generation, gained some steam as the session wore on but eventually fizzled.

Lawmakers also let the controversial “millionaires’ tax” — a tax bracket for state residents with more than $1 million in annual income — quietly expire.

O’Malley, responding to predictions of tax hikes looming in 2011, said he “hopes” he won’t have to raise taxes if the economy improves.

“The most important variable out there right now is how quickly our economy comes back in Maryland,” O’Malley said. “We could be facing a couple more years of more severe cuts.”

Unemployment benefits

The battle over changes to unemployment benefits pushed by O’Malley dominated the early part of the session.

As the state’s jobless ranks swelled last year, unemployment claims shot skyward. More than $1 billion in benefits were paid from the Unemployment Insurance Trust Fund, and the low balance in the fund triggered an automatic increase in the unemployment insurance taxes paid by businesses in 2010.

O’Malley proposed expanding benefits to qualify the trust fund for a one-time, $126.8 million infusion from the U.S. Department of Labor in hopes of keeping the fund solvent and lowering unemployment insurance tax rates next year.

But businesses held up passage of the plan until lawmakers and labor interests agreed to a set of benefit reductions to offset O’Malley’s expansion.

“Even though employers of all sizes are paying more in [unemployment insurance] taxes this year, we stand a better shot at having our taxes lowered in 2011 than if we didn’t get the federal stimulus money,” said Kathleen T. Snyder, president and CEO of the Maryland Chamber of Commerce.

Foreclosure

The governor and lawmakers also sought to help beleaguered homeowners for the second time in O’Malley’s term.

In 2008, as the housing crisis mounted, the General Assembly tightened lending standards, cracked down on mortgage fraud, banned mortgage rescue scams and extended the length of time required to complete foreclosure proceedings.

This year, having already experienced two waves of foreclosures and expecting another, the General Assembly toughened foreclosure rules in the waning days of the session.

The legislation submitted by O’Malley will require lenders to check borrowers’ eligibility for loan modification programs. Borrowers also will be able to request face-to-face meetings with their loan holders to find ways to modify their loans.

The mediation law will “protect home ownership by giving every family the ability to bring these faceless mortgage-servicing giants to the table before a family can be thrown out of their home in a foreclosure action,” O’Malley said at the bill-signing ceremony.

A $300 foreclosure filing fee will be charged to lenders, and a $50 fee to borrowers who opt for mediation. The money will be used to add administrative law judges for mediations and to pay for nonprofit housing counseling programs. The new foreclosure rules take effect July 1.

Job creation

The 2010 session also saw the passage of several proposals aimed at creating jobs and nudging the state in a positive economic direction.

On March 25, O’Malley signed into law — along with the unemployment legislation — a $5,000 tax credit for every Marylander who businesses hire off the unemployment rolls this year. The program is capped at $20 million total and $250,000 per business.

O’Malley also pushed through a $3.2 billion in building projects that he expects will create 20,000 construction jobs.

And on the session’s final day, lawmakers approved a one-year extension and expansion of the Heritage Structure Rehabilitation Tax Credit. O’Malley had sought $50 million over three years for the program, but wary of dedicating so much money in uncertain fiscal times, lawmakers opted instead for $10 million for one year.

State legislative analysts estimate that 72 jobs have been created by every $1 million claimed since the credit program began in 1996.

Developers and business groups lauded the tax credit initiatives, but Republican lawmakers criticized O’Malley for not doing enough for the state’s business climate.

O’Donnell called the job creation tax credit “window dressing.”

“We did very little to create an environment — and government doesn’t create jobs or shouldn’t create jobs — to create an environment for job creation,” he said.

Business climate

However, some proposals failed or were weakened as lawmakers questioned their impact on the state’s business climate.

Legislation that would have allowed the state to collect sales tax from some online retailers that don’t have a physical presence in Maryland died in committee.

Efforts to make businesses pay corporate income taxes based on a combined reporting system were tabled until next year. Combined reporting is an accounting method that is used to determine a company’s tax liability based on a share of its income earned both in the state and out.

A state commission is studying combined reporting, and lawmakers ordered it to file its final report at the end of the year, setting the stage for more combined reporting legislation in 2011.

“I would certainly think combined reporting is an issue that will be pushed next year,” Fry said.

After failing in each of the last three years, a bill requiring employers to give their workers shift breaks won legislative approval. But it was more narrowly tailored than the previous bills and applied only to large retailers with more than 50 employees working daily.

Franchises with fewer than five employees on site, government workers, office workers and employees covered by a collective bargaining agreement that includes shift breaks are not covered by the bill.

“We see that as precedent-setting for the General Assembly to expand that to all businesses,” Snyder said. “One size does not fit all when legislators work on workplace regulations.”