Vetoes not a sweep for business

by Catherine Dolinski, Steven T. Dennis and Thomas Dennison
Staff Writers

May 28, 2004

ANNAPOLIS -- The governor who promised an unabashedly pro-business administration gave a mixed bag to the business community with his final decisions on vetoes.

Although Gov. Robert L. Ehrlich Jr. allowed his own bill closing the Delaware corporate loophole to become law, he did so without signing it and with four pages of grumbling about the potential harm for "legitimate business transactions." He said he would look to drafting legislation to fix it, possibly in a special session.

Ehrlich (R) pleased some businesses by allowing a tax amnesty bill to become law without his signature, which could cost the state as much as $80 million.

Meanwhile, he cited business concerns in vetoing a $65 million corporate tax hike tied to a cap on college tuition increases and to the so-called living wage mandate for state contractors. That prompted liberal advocacy group Progressive Maryland to launch an immediate veto override campaign, while the Maryland Chamber of Commerce asked its members to lobby to sustain the vetoes.

Ehrlich's acquiescence on the tax amnesty bill also angered key ally Comptroller William Donald Schaefer (D), who for years has been chasing back taxes owed on income sheltered in out-of-state holding companies.

"The comptroller thinks it is a big mistake," said Schaefer spokesman Michael D. Golden. "Not only does he take it personally, he thinks it's a slap in the face to those staff members who spent the last year going after these holding companies. It's pulled the rug out from under them, and our efforts to get them to pay the taxes they owe to the state."

The retroactive provision will force the state to return $8 million of the $14 million that the comptroller collected from 19 corporations in the past year, Golden said.

Considering the tear that Ehrlich has been on urging the business community to be "bold" and "fearless" in Annapolis, some lobbyists and lawmakers questioned his decision to take a pass on the amnesty legislation.

"I think he was less than fearless," said Del. Pauline H. Menes (D-Dist. 21) of College Park.

Robert O.C. "Rocky" Worcester, president of Maryland Business for Responsive Government, defended the tax amnesty.

"When the penalties reach back to the day when ABC Corporation in 1973 began using this means of tax avoidance, that's extremely severe," he said.

Golden said the comptroller blames the Maryland Chamber of Commerce for the amnesty bill.

Chamber President Kathleen T. Snyder said she is pleased with the amnesty bill, but called the main loophole bill a major disappointment.

"There are some technical problems with the bill; a number of companies that don't even have Delaware holding companies will be impacted," she said.

The chamber has begun mobilizing its membership to "fix" some other potential "problems" next session -- specifically, possible campaigns to override the higher education and living wage vetoes.

The living wage bill would have required contractors and subcontractors to pay employees working on large state contracts at least $10.50 an hour.

On Wednesday, House Minority Leader George C. Edwards (R-Dist. 1A) of Grantsville said the proposal implicitly favored wealthier counties that have adopted -- and adapted to -- living wage laws.

"I think that's something that hasn't been discussed," he said. "If the locals want to do it, that's their decision. If you do it at the state level, I think it will benefit Montgomery, Prince George's and Baltimore."

In his veto message, Ehrlich called the living wage policy "the wrong message" for Maryland, saying it would hurt small businesses and increase unemployment.

"That's crap, crap -- bunk and crap," said Progressive Maryland spokesman David Paulson, riffing on Ehrlich's complaints about multiculturalism. "Unemployment never increases, and small businesses are excluded from this."

Paulson said he is confident an override can happen. "We've got the votes."

But Del. Curtis S. Anderson (D-Dist. 43) of Baltimore, who supported the bill during the session, was not so sure. The legislation, he said, rests largely on the wants of House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller Jr., neither of whom adopted living wage as a priority.

Miller (D-Dist. 27) of Chesapeake Beach said overriding the living wage bill will be a tough sell.

He spoke more enthusiastically about overriding Ehrlich's veto of a bill that would cap tuition hikes at 5 percent a year while raising the corporate tax rate from 7 percent to 7.7 percent.

"We provided a 10 percent increase to higher education for the eight years preceding Gov. Ehrlich," Miller said. "Level funding, as this governor has done, is a major cut. I would certainly be amenable to an override."

It is too early to talk definitively about veto overrides, said Busch (D-Dist. 30) of Annapolis. The first step, he said, will be to analyze the veto message and look for areas of common ground and potential compromise. "If there is an absolute philosophical difference ... we start talking about veto overrides."

Some Democrats have welcomed Ehrlich's veto of the higher education bill because it plays into their message that the governor puts corporate interests ahead of families struggling to pay tuition.

But Ehrlich said mandated funding -- as outlined in the $1.3 billion Thornton commission school funding plan -- is what created the state's budget deficit.

"Mandated spending is a really bad idea," Ehrlich said, adding that he has met with University of Maryland Chancellor William E. Kirwan about staving off higher tuition costs.

"I'm very disappointed that they couldn't come together on a revenue source," Kirwan said Wednesday night at the Universities at Shady Grove in Rockville. "At least they all agree on the need for more money. It's just down to a philosophical difference on where that money should come from."

The tuition cap veto was the right thing to do, Snyder said, because the corporate tax would not fully cover the cost of the bill. "It's another case of an underfunded mandate the General Assembly used to target a certain audience. It was not fiscally responsible."

"I think that's a very weak argument," said James Rosapepe, a member of the University System of Maryland Board of Regents and co-founder of Marylanders for Access to Quality Higher Education.

The legislature imposes budget mandates all the time, he said: "Most of the state budget is driven by law. That's what Thornton is; so is Medicaid. The budget is driven by law because we make long-term investments. From a business point of view, trying to manage the system without that level of instability makes it less efficient, not more efficient."

Staff Writer Jeremy Bond contributed to this report