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Gov. Larry Hogan discusses his plans for the state budget on Thursday. (The Daily Record / Maximilian Franz)

Md. Gov. Hogan promises tax relief proposal

ANNAPOLIS — Gov. Larry Hogan Thursday vowed to introduce tax cuts as part of his legislative agenda and budget package for this year.

Md. Gov. Larry Hogan. (The Daily Record / Maximilian Franz)

Md. Gov. Larry Hogan. (The Daily Record / Maximilian Franz)

Hogan made the promise in a briefing with reporters in which he provided broad strokes that included many previously announced programs but no details. The governor also vowed to introduce legislation he said would reduce the amount that needs to be spent on mandated programs in lean years.

“Next week we will propose additional tax and fee reduction proposals that will require the cooperation of the legislature which will deliver an approximately $400 million more in additional tax relief to over 1 million more Maryland citizens and over 300,000 small businesses. Given the challenges that we continue to face with respect to long-term spending, we have identified those areas where modest and reasonable tax cuts could have the biggest positive impact on our economy which will do the most to improve the lives of struggling Marylanders. Those who will benefit the most under our proposals are those who have been suffering the most, including struggling Maryland families, retirees and small business owners.”

Hogan said the legislation would be in addition to what he said was $600 million in reduced fees and tolls, which also includes refunds related to a Supreme Court decision.

The announcement drew swift criticism from the Maryland Democrats.

“Last year, Governor Hogan made deep cuts to public education, the state workforce, and services for the developmentally disabled, and raised college tuition,” said Pat Murray, executive director for the party. “‘Mandate relief’ is Hogan-speak for ‘larger class sizes’ or ‘higher tuition bills.’ In the absence of a real plan that the public can consider, the governor is just making noise.”

House Speaker Michael E. Busch said he was unaware of the details of Hogan’s plans.

“It all comes down to the details,” Busch said.

“I think we’re all for tax relief, it’s just what’s the cost of that,” Busch said. “What programs do you reduce or cut to make that happen? You’re in a position where you have certain obligations you have to meet under the law and one of them is to fully fund K-12 education including geographic index costs which the governor … let become law — that’s got to be funded. Then you have your federal obligations for Medicaid spending. That’s not an option, you have to meet that obligation. If you want to keep tuition low you have to fund your higher education. Do you give employees raises? That’s an area where you can save money if you don’t give your employees raises or reduce the workforce.”

There is a need for caution and fiscal restraint, Hogan said, even though the state is on track to end the current budget year with a more than $500 million surplus.

Hogan said one of those efforts involves him holding the line on borrowed spending at $995 million — about $50 million less than a state legislative panel recommended in December.

Hogan is doing that at the same time he said he plans to an “additional $314 million” on school construction — money that could come from the projected surplus.

The state’s tenuous finances are because of spending and borrowing under former Gov. Martin O’Malley, Hogan said.

“Basically we’re paying the bar tab they walked out on,” the Republican governor said.

Debt payments are typically covered by state property taxes, with any shortfalls covered in the general fund budget. By next year, the state will have to kick in $433 million in general fund money to cover those debt payments — an amount that is higher than the additional spending Hogan is proposing for school construction and renovation programs statewide in the coming year.

The governor then drew a line in the sand with the legislature.

“I realize that old habits are hard to break and that the legislature may try to force us to borrow and spend more and more,” Hogan said. “They might try to fence off items in the operating budget in an attempt to get us to change our common-sense spending principles. So to our friends in the General Assembly, let me be very clear: Fencing off money will not work. We’ll be happy to hold on to the money, increase our reserves, protect our pension system and put us in a better long-term financial situation.”

Last year, the legislature did fence off more than $100 million in additional aid to education and to cover promised state employee raises and other programs. Hogan released money for the raises but refused to release $68 million in supplemental education money.

Hogan said additional budget control efforts will include proposed legislation to change mandated spending items, which total about 83 percent of the overall budget.

“We still need hard work to bend the (spending) growth curve downward.

Hogan blamed the problem on state law “that forces the state to spend more than it takes in” in the form of laws that set spending formulas on specific programs, including education.

“We’re forced to do all of our budget balancing and all of our reining in of spending out of the other 17 cents,” Hogan said. “It’s completely absurd. It’s unsustainable and has to end.”

Hogan said his proposal would suspend those mandated increases “in years where revenues do not keep pace.”

Sen. J.B. Jennings, R-Baltimore and Harford Counties and Senate minority leader, called the proposal the “fiscally responsible and fiscally prudent thing to do.”

“I know many legislators who agree that we have to re-evaluate these formulas — Democrats,” Jennings said. “Many have agreed. Now that their feet are being held to the fire, let’s see if they do it.”

But Sen. Richard S. Madaleno Jr, D-Montgomery County and vice chairman of the Senate Budget and Taxation Committee, said any cuts to mandated spending are unacceptable.

“Actually what the governor is talking about is cutting education, cutting health care, cutting public safety,” Madaleno said. “Those are our mandates.”

“The reality is those things are driven by enrollments, whether it’s the number of people in prison, the number of kids in K-12 , the number of kids in college, the number of people eligible for medical assistance — those things are all driven by other factors that are outside of the economic cycle,” Madaleno said. “The problem is, when the economy turns down, people turn to the government for help. That’s how the system is supposed to work.”

Madaleno called the proposal to suspend mandated increases in lean years “a gimmick.”

“I’m sure he’s going to propose a complete gimmick,” Madaleno said. “Now he’s going to come in and hide behind, ‘I’m going to have some sort of trigger to reduce the amount of money going out in lean years’ because he knows if he were to actually go in and try to fight program by program to actually make proposals about cutting health care or education or public safety, he would lose big time. He would lose in the legislature, he would lose amongst Republicans and he’d lose amongst the voters.”