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O’Malley pitted against coal industry, Western Maryland

ANNAPOLIS — For the third consecutive year, Gov. Martin O’Malley is attempting to repeal a multi-million dollar tax credit the Maryland coal industry says is vital for it to compete with neighboring states.

O’Malley’s budget proposes abolishing the Maryland Mined Coal Credit, which awards energy companies a $3 per ton credit for purchases of coal mined in the state. Legislative analysts estimate the repeal would save the state $4.5 million in fiscal 2013 and an estimated $30 million more by fiscal 2020 — the year the credit is slated to expire.

The repeal attempts put O’Malley at odds with Western Maryland’s leaders.

Lawmakers created the credit in 1987 and the coal industry has battled back attempts to repeal it since at least 2004. In 2006, under Republican Gov. Robert Ehrlich, lawmakers and the coal industry agreed to phase out the tax by fiscal 2020 to coincide with the end of a fuel supply agreement at Cumberland-based AES Warrior Run, an electric generating plant that consumes most of Maryland’s coal.

O’Malley, whose energy portfolio is laced with ideas to promote renewable sources like solar and wind, opposes state-funded incentives for the purchase of fossil fuels, spokesman Shaun Adamec wrote in an e-mail. It’s simply inconsistent with the administration’s policies, he said.

The O’Malley administration first proposed repealing the coal credit in 2009, but reached a compromise that slashed it by 50 percent. O’Malley tried again, unsuccessfully, last year.

This time, however, the coal industry and Western Maryland lawmakers appear unwilling to strike a deal.

“I’m not pushing for any compromise this time. Just leave it the way it is,” said Sen. George Edwards, a Republican from Garrett County and a long-time ally of the coal industry. “If this passes you could see a lot of people out of work.”

As the session starts to shift toward serious budget negotiations, a House Appropriations subcommittee will recommend how to proceed with the proposed repeal this week. A key delegate signaled Wednesday that members of the committee handling the proposal feel the state should honor its 2020 deal.

Maryland’s coal industry argues the tax credit is vital for its long-term viability. The subsidy, its proponents hold, helps Maryland coal prices stay competitive against cheaper and higher quality product mined in West Virginia and Pennsylvania. A full-blown repeal could shift jobs, and tens of millions in economic impact, from Maryland to those neighboring states, they argue.

The issue is pitting O’Malley and a fiscally-conservative Republican from Anne Arundel County on one side against Comptroller Peter Franchot and Maryland’s two westernmost counties on the other.

Allegany and Garrett counties are the only two in Maryland with mining operations. Collectively, their mining facilities employ an estimated 560 workers and are responsible for another 2,800 spinoff jobs, Franchot said.

Franchot said attempts to repeal the credit are misguided because coal is the “life blood of Western Maryland.”

“Coal is to Western Maryland what the citrus industry is to Florida,” he said. “I think folks out there have a point, which is ‘Hey, why are you picking on us?’”

O’Malley’s proposal would repeal the tax credit starting in fiscal 2013.

Del. Herb McMillan, R-Anne Arundel, is proposing a separate measure to eliminate the credit, but he wants it done away with one full year earlier. McMillan, who proposed a coal credit repeal in 2004, said the money saved can be used to help shore up the state’s budget deficit.

“Why should taxpayers in Anne Arundel, Prince George’s, Montgomery (counties) … be asked to keep energy prices low in Western Maryland?” McMillan said.

McMillan’s proposal is in the House Ways and Means Committee, where it’s unclear whether it will advance to the full House of Delegates.

But O’Malley’s proposal is part of the Budget Reconciliation and Financing Act of 2011, which seeks to balance the state budget, in part, by approving the transfer of special funds to the state’s general fund.

The House Appropriations Committee will receive an initial recommendation about the repeal this week from a subcommittee, Chairman Norman Conway, D-Wicomico, said.

The general sentiment among committee members, Conway said, is that the state struck a deal with the coal industry five years ago and should “honor the time frame” set forth in that contract.