Lawmakers Wrap Up Special Session

Voters will decide in a November 2008 referendum on allowing up to 15,000 slot machines, after lawmakers concluded that putting the matter to a constitutional amendment was the best chance to end years of gridlock in Annapolis over the divisive issue.

"This was a tough undertaking," House Speaker Michael Busch said of the overall effort, after the House adjourned shortly after 2 a.m. "But I think in the end, we finally resolved the structural budget deficit that's been with us for over a five-year period of time."

The General Assembly agreed to restructure the state's income tax rates for the first time in 40 years. Lawmakers also approved raising $400 million annually for transportation projects, a health care initiative to extend coverage to about 100,000 uninsured residents and a $50 million fund to clean up the Chesapeake Bay.

Lawmakers who lead the legislature's fiscal committees met Sunday after noon to hammer out compromises over differing tax packages resulting from the special session that spanned three weeks.

Democrats contended that years of procrastination in addressing the budget gap could not continue without harming the state.

"We are fixing the fiscal problem in Maryland," said Delegate Kumar Barve, the House Democratic leader.

But Republicans charged that Gov. Martin O'Malley, a Democrat, and Democratic lawmakers rammed through a variety of tax increases without giving legislators or the public enough time to consider what was hitting them.

"This entire process has been flawed," said Senate Republican Leader David Brinkley, R-Frederick.

The tax package will raise an estimated $890 million for the state's general fund, plus $400 million on top for transportation. Slot machines, if they are approved by voters, could raise hundreds of millions of dollars after several years.

Lawmakers debated into the early morning hours of Monday morning about roughly $550 million in spending reductions, including $145 million in savings by cutting back on plans to compensate schools for inflationary increases under the Thornton education funding law. Many of the budget reductions, which were approved in a budget reconciliation bill, are recommendations to the governor, who won't submit the state budget for fiscal year 2009 until January.

Lawmakers resolved differences to restructure the state's income tax brackets. The income tax in Maryland now is relatively flat. That's because everyone who makes more than $3,000 in taxable income pays a 4.75 percent rate. The change set up three new brackets. Single tax filers making more than $150,000 and joint filers making more than $200,000 will pay 5 percent; singles making more than $300,000 and joint filers earning more than $350,000 will pay 5.25 percent; people with income above $500,000 would pay 5.5 percent. The changes, which will take effect in January, will raise an estimated $197 million in fiscal year 2009.

Lawmakers also agreed to increase personal income tax exemptions for single taxpayers who make less than $100,000 and joint filers who earn less than $150,000 in federal adjusted gross income.

The sales tax will be going up from 5 to 6 percent, which will affect just about everyone. The tobacco tax will jump from $1 to $2 a pack.

Lawmakers compromised on raising the corporate income tax from 7 to 8.25 percent, reaching middle ground between the Senate's 8 percent proposal and the House's 8.75 percent.

In one of the special session's most contentious proposals, lawmakers agreed to go along with the Senate's idea of extending the sales tax to computer services, a change that would raise an additional $190 million a year. However, a five-year sunset clause was tacked on to it.

Negotiators also decided to reject a so-called "snowbird" tax, in what would have been an estimated $50 million revenue raiser by changing residency requirements to three months instead of six to assess income taxes.

In health care, the $600 million plan is designed to cover an additional 100,000 of Maryland's estimated 800,000 uninsured by phasing in the initiative over several years. About $20 million also was approved for the financially struggling Prince George's County Hospital Center, once a memorandum of understanding is reached on managing it.

For the environment, the special session resulted in a new $50 million fund to help protect the Chesapeake Bay. Lawmakers decided to go along with a plan that calls for directing money from taxes on gas and car rentals into the fund, instead of using money from Program Open Space, a land preservation program, and a tax on car titling.

One of the session's biggest votes came at about 1:40 a.m. Sunday in the House of Delegates. The House managed the minimum 71 votes needed to pass a bill that contains the details of implementing slot machine gambling in Maryland, if voters approve legalizing them in a referendum in November 2008.

Forty-four delegates voted against the bill, 15 did not vote and 11 were absent for a vote that prompted several late-coming delegates to request that their votes be recorded after the matter was no longer in doubt. The bill, which defines how 15,000 machines would be distributed in five locations, complements another measure the House barely managed to pass Friday night to hold a referendum on whether to legalize slot machines.

The measure spells out a variety of details on implementation and regulation. It proposes putting 4,750 machines in Anne Arundel County, 2,500 in Cecil County, 2,500 in Worcester County, 3,750 in Baltimore city and 1,500 in Rocky Gap State Park near Cumberland.

Seven percent of the money would go toward raising purses for horse races, a provision intended to help Maryland's struggling racing industry. About half will go to education, and 33 percent will go to slot machine operators.