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Number of tax credits to be reviewed cut at request of auditors

ANNAPOLIS — The number of tax credits available for review under a Senate plan was cut to one-quarter the original total because the department that would conduct fiscal analysis of those credits was unsure how hefty the workload would be.

SB 739, sponsored by Sen. Richard S. Madaleno, D-Montgomery, would mandate the review of eight tax credits between July 2014 and July 2017 — two per year. Originally, 31 credits were slated for review in that time span.

A House of Delegates version of the legislation — HB 764, sponsored by Del. Bill Frick, D-Montgomery — still calls for the review of 31 credits. Frick, who saw his bill pass easily in the House, said he was surprised to see how the Senate bill was altered. SB 739 was given final approval in that chamber on Friday.

“I’d rather be more inclusive than the Senate version,” Frick said, adding that there was a “fairness issue” in narrowing the number to those eight credits.

There are 341 breaks in the state’s tax code, which come in the form of credits, exemptions, subtractions, refunds and deductions. Frick said the original legislation targeted most of the state’s credits. The state does not keep reliable records on how effective most tax breaks are.

Madaleno said the Budget and Taxation Committee amended his bill at the behest of the Department of Legislative Services, which would be responsible for doing the fiscal analysis of credits under review. Madaleno is a member of the Senate committee and said he supported the amendment.

Because there is no review process for credits, and legislative services said it did not know how much time or how many staff members would be needed to complete each review, Madaleno said it was decided to start with a smaller number.

The credits still standing in the Senate bill have cost estimates attached to them, derived from census data, projections done in other states and forecasts of policy analysts. Of the state’s 341 breaks, the state has “no reliable estimate” for how much 142 of them cost.

According to available estimates, however, the credits left for review are the eight costliest credits in the state, Madaleno said.

The Department of Business and Economic Development monitors five of the credits: property in an enterprise zone; One Maryland economic development, qualified research and development; new job creating businesses; and biotechnology investment incentives. The department ensures that the recipients of the credits qualify, but only monitors the benefits of some.

The Department of Budget and Management maintains cost estimates of the other three credits, including earned income; film production activity; and sustainable communities.

Whittling the list of reviewable credits in the Senate legislation would have the effect of lightening the workload on analysts until it is determined how long it takes to effectively review the credits, Madaleno said.

“Instead of biting off more than we can chew, [we said] here are the eight costliest credits, let’s start with them, start the process, see how it goes, and then come back to and look at the broader scope,” Madaleno said. “We don’t want to promise more than we can deliver.”

Frick said he understood the staffing and time concerns articulated by legislative services, but hoped that a conference committee would be convened to bridge the 23-credit gap between the House and Senate proposals.

“Eight is not enough,” Frick said. He conceded that eight was better than zero, but said, “I prefer the way we [the House] did it.”

Madaleno said he would be willing to seek a middle ground, too, but added that a conference committee would need to heed the recommendation of those tasked to do the job — the fiscal analysts.

“We have to be respectful of the people who are going to do the work,” Madaleno said.

The bills would create a two-member legislative committee, appointed by the House speaker and Senate president, to review the credits. In June, that committee would consult with the Department of Budget and Management, the Department of Legislative Services, the state comptroller and a representative from each agency’s office to determine how best to review the tax credits.

Both bills were amended in committee to remove a clause that would have forced the termination of tax credits that were not re-established by the legislative review committee. Instead, breaks would be continued unless recommended for termination.