The Gazette

House ties DBED money to loophill bill

Threatens to withhold $28M if Ehrlich vetoes

by Catherine Dolinski
Staff Writer

March 26, 2004

ANNAPOLIS -- The House of Delegates is threatening to hold $28 million hostage from the state Department of Business and Economic Development unless Gov. Robert L. Ehrlich Jr. signs his own bill to close the so-called Delaware corporate tax loophole.

The House version of the state budget includes an amendment that would strip $28 million from DBED's tourism, film, business development and investment programs if the governor vetoes the bill he introduced to prevent companies from sheltering income in Delaware holding companies.

The House and Senate have passed the governor's bill but with different amendments -- the House version being less business-friendly and barren of any tax amnesty provisions for companies. A conference committee will decide which version of the bill makes it to the governor's desk.

House Speaker Michael E. Busch said that if Ehrlich (R) reneges on his promise to end corporate tax avoidance through holding companies, the department's budget is fair and appropriate game.

"It's the governor's bill," said Busch (D-Dist. 30) of Annapolis. "If it doesn't pass, we're out $30 million. DBED's primary job is to attract businesses and corporations to the state. If we're not going to ask them to pay their fair share, then we can do without some of these programs [and] eliminate some of the unnecessary bureaucracy."

House Appropriations Chairman Norman H. Conway (D-Dist. 38B) of Salisbury said the committee saw the amendment "as a strategy to make their point." Targeting DBED's funding made sense, he said, given the nature of the department's mission.

But some administration officials were livid and quick to denounce the political strategy as petty, especially DBED Secretary Aris Melissaratos, who said he has already taken a 9 percent budget cut this year.

"It's ridiculous," Melissaratos said. "I would really hope our political leadership would have better sense than this."

News of the threat took Melissaratos by surprise, he said, because he recently had what he considered a "good session" with Busch during which he warned the speaker against jeopardizing Maryland's reputation for business. Business advocates are already deriding the speaker's tax package, which includes a sales tax hike.

"I should just let [Busch] proceed and win," Melissaratos said. "I should let him sleep in the bed that he has made. He has picked the highest priority items in the DBED budget."

The House's strategy does not amuse Budget Secretary James C. "Chip" DiPaula Jr.

"We just hope they're not playing games with the state's budget," he said "Both the House and Senate have already agreed on the appropriate funding levels for DBED."

Senate Budget and Taxation Vice Chairman Patrick J. Hogan (D-Dist. 39) of Montgomery Village called the House amendment "a creative tactic," though he questioned its necessity since the governor introduced the legislation himself this year.

Ehrlich vetoed a tax package last session that would have closed the so-called Delaware loophole, but cited a tax on HMO premiums as the reason for his veto.

"I'm sure he opposes the language [in the amendment]," Hogan said, but "I find it hard to believe he would veto his own bill."

But while Ehrlich called the amendment "silly" this week, he did not rule out the possibility of a veto.

"Well, sure, it's always a possibility," the governor said. "But we're trying to work things out ... we're working with all of the stakeholders."

Ehrlich spokeswoman Shareese N. DeLeaver said the governor has sided with Comptroller William Donald Schaefer (D) to oppose any amnesty provision. The Senate bill would bar the comptroller from imposing any penalty on businesses that pay back taxes or demanding payment of back taxes earlier than 1995.

DeLeaver said there are other "sticking points" in the bill that must be hammered out before the governor will sign his name to the bill, but would not go into further detail.

Schaefer, while an ardent supporter of getting the Delaware loophole closed, nonetheless slammed the House tactic as "blackmail" that could force the governor to sign the wrong version of the bill.

House Minority Whip Anthony J O'Donnell (R-Dist. 29C) of Lusby seconded the blackmail accusation.

Shown the budget provision, O'Donnell ripped it as a "terrible bill that would destroy an important part of government for political reasons," and disparaged its authors as people "who would rather hurt the citizens of Maryland for petty, partisan, political reasons than do the hard work that needs to be done."

For complete coverage of the 2004 legislative session, go to www.gazette.net/annapolis2004/.