So far, so good, is the consensus among the state’s business leaders of this year’s legislative session — but they’re still holding their breath.
The General Assembly ended its annual three-month session Monday night without having passed a budget that averts the so-called “Doomsday budget,” with major cuts in state funding for schools and other programs. That conclusion left many in the business community relieved that no major corporate tax increases were approved, but apprehensive about what a possible special session might bring.
“Strange” was how Kathleen T. Snyder, president and CEO of the Maryland Chamber of Commerce, described the session.
“The end of the session was highly unusual with an 11th-hour vote on the operating budget,” she said. “There were a lot of nerves on end.”
“This session will be remembered by finger-pointing, dysfunction and chaos,” Kimberly M. Burns, president of business advocacy organization Maryland Business for Responsive Government, said in a statement.
Although the ending was surprising, Ellen Valentino, Maryland state director for the National Federation of Independent Business, said she had not heard from many members of her trade group for small companies who want to see a special session.
“I’m not hearing a loud cry from our members for legislators to reconvene and raise taxes,” she said.
As in recent years, the state chamber played a lot of defense, opposing bills that could have made the state less competitive in attracting and retaining employers, Snyder said. Some 90 percent of legislation the organization lobbied against did not pass, such as combined reporting and expanding the sales tax.
Many that did pass — like a review of tax credits for biotech investment, research and development, and other expenses, and the new health insurance exchange system — were amended to make them more agreeable to businesses.
The chamber’s advocates and members “did a good job making sure legislators understood that Maryland is not an island and we compete in a global marketplace,” Snyder said. “While those bills might have been well intentioned, either amending or defeating the legislation was a success for business.”
The Maryland Retail Association also worked hard to ensure its members’ needs were heard, said Patrick Donoho, president of that trade group. That included lobbying against proposals such as one that would have imposed a 5-cent tax on disposable bags statewide.
“I would hope that people would focus on developing good comprehensive recycling programs,” Donoho said.
With continued concern about the economy among small businesses, leaders of the Montgomery County Chamber of Commerce focused on legislation that would strengthen that segment, said Georgette “Gigi” Godwin, president and CEO of the organization.
Two key bills that passed that the chamber worked on will loosen restrictions on small businesses seeking to qualify for the state reserve contracting program, and allow a state tax credit for certain costs incurred by a business to obtain security clearances for employees and to construct or renovate a facility within Maryland where sensitive information may be stored.
“These new policies will help these businesses grow and create jobs,” Godwin said. Many of the counties’ small businesses are government contractors, she said.
The contracting legislation was authored by Del. Kirill Reznik (D-Dist. 39) of Germantown and Sen. Karen S. Montgomery (D-Dist. 14) of Brookeville. The Small Business Reserve Program, created in 2004, requires 23 state agencies to reserve at least 10 percent of the dollar value of their procurements for bids by certified small businesses.
But the total has remained below that goal, reaching 6.2 percent in fiscal 2010, up from 5.6 percent in fiscal 2009, according to state figures.
Among the agencies that have come closer to meeting the goal is the Department of Business and Economic Development, which led agencies in 2010 with a 24 percent rate. The Departments of Health and Mental Hygiene, and Education were among those below 5 percent.
To qualify for the program, small businesses have needed to stay below caps for both their number of employees and their average gross sales. The newly approved bill would let a company qualify by meeting either limit.
The limits vary depending on industries; retail businesses cannot have more than 25 employees and $3 million in average gross sales. Service companies cannot field more than 100 employees and gross more than $10 million in average sales.
The legislation is good public policy, said Judy Stephenson, president of Gaithersburg software training company Officepro, whose business has yet to win a state contract.
“It probably won’t do my business much good, but it will make a lot more small businesses eligible for the program,” Stephenson said. “The qualifications were so restrictive before.”
However, a state legislative analysis says that although more businesses likely will qualify for the program, existing certified small businesses will face increased competition. The bill “does not necessarily increase the likelihood of an agency or the state achieving the 10 percent goal,” analysts wrote. “Achievement of the goal depends on the size and number of agency procurements reserved for [small-business reserve] procurement.”
The security clearance proposal, sponsored by Sen. Roger Manno (D-Dist. 19) of Silver Spring, would be administered by the Department of Business and Economic Development and award a maximum of $2 million in credits each year. It will be another incentive to attract and retain government contractors, Godwin said.
The Montgomery chamber played a “critical role” in helping to pass the bill, Manno said.
R&D credit not expanded; transportation funding in limbo
One setback to many business leaders was lawmakers’ failure to triple funding for the state’s research and development income tax credit, from $6 million to $18 million. The legislation unanimously passed the Senate but bogged down in the House.
Another that would have aided pharmacies by expanding vaccines they can administer did not make it out of committee.
“That was a disappointment,” Donoho said.
Among bills that were amended to business leaders’ satisfaction were the tax credit proposal that deleted a proposed automatic termination provision, and the health insurance exchange bill that makes it more difficult for the exchange board to exclude health insurance carriers after 2016.
Legislation that revises how the Maryland Workplace Fraud Act defines employees and independent contractors will help small businesses, especially carpenters, painters and others in the construction and building industry, Valentino said.
“These small businesses will get a fairer shake when being investigated by the state,” she said.
Transportation funding was among the issues left unaddressed, as the rising price of gasoline and diesel fuel was a key factor in thwarting a measure to tie a fuel tax increase to road and transportation improvements. Some business groups, including the Greater Baltimore Committee and state chamber, supported hiking the tax, which has not been raised since 1992 and is below the national average. They said the added revenue would help finance badly needed infrastructure improvements.
But raising the tax on gasoline — which already is selling for more than $4 a gallon on average — would be disastrous to most businesses, especially those that rely on deliveries and already have had to adjust prices, said Elda Devarie, president and CEO of EMD Sales. The ethnic food distribution business, which has a fleet of trucks, started in Landover before moving last year to Baltimore.
“Transportation is one of our biggest costs,” Devarie said. “We have already had to make some adjustments.”
Concerns about possible special session, ‘Doomsday’ budget
A big problem with holding a special session is that any legislator can introduce a bill and business lobbyists usually have little time to react to it, Snyder said. Sometimes there are not even public hearings on the legislation.
“No one has a copy of the bill until maybe an hour before a hearing,” Snyder said.
There are “a lot of unknowns” in a special session, Donoho agreed. “You start all over again.”
Although legislators passed a fiscal 2013 operating budget, they did not approve bills that would have transferred funds, shared teacher pension costs with counties and raised taxes. That triggered the so-called “Doomsday budget” with $512 million in cuts that include education, the biotech investment and sustainable communities tax credit programs, and the stem cell research fund.
The budget does boost key projects supported by business leaders, such as the Rockville Science Center at Montgomery College.
A deal being worked on to possibly change that budget in a special session could result in little public input, Snyder said. But the Doomsday budget also is not acceptable to chamber leaders, as there are broad funding decreases not just to education and important tax credit and research programs, but health care, she said.
“That would impact the economy in Maryland and our ability to have a good quality of life,” Snyder said.
One proposal discussed to raise income taxes on wealthier Marylanders could chase more business executives out of the state, she said. Valentino said many small-business owners would be hurt by such an increase.
The Doomsday budget really is intended to give political cover for lawmakers to support more taxes, Burns said.
“Ironically, the governor and legislature could have called the Doomsday budget a 'new day' budget, declared victory and gone home,” Burns said. “But it was never intended to be taken seriously, and there will now be a mad scramble to continue government spending at record levels as a special session looms on the horizon.”
Added Valentino: “Many of our members would say they have been operating under a Doomsday budget for the past three years.”
No slots, no crapsThe legislature also adjourned without taking action on proposals to introduce more gambling in the state. Various measures would have authorized a sixth slots location in the state, with table games included at all the casinos.
Penn National Gaming of Wyomissing, Pa., owner of Rosecroft Raceway, has been pressing to get a slots license for the harness track in Fort Washington since it purchased it in a bankruptcy auction last year. It wasn't at all happy with a push to bring slots — and table games — to nearby National Harbor in Oxon Hill, the preferred site of Prince George's County Executive Rushern L. Baker III (D).
“We were disappointed by what the legislation ultimately ended up looking like,” said Karen Bailey, spokeswoman for Penn National. “It was like a carve-out, a giveaway to National Harbor.”
She said Baker never reached out to Penn National regarding a slots proposal.
As no legislation passed to extend slot licenses to Prince George’s, Penn National plans to continue to pursue a license at Rosecroft, Bailey said, adding that nobody knows yet how a possible special session could play out.
“If it doesn’t happen this year, we will try again next year,” she said.
Penn National has made no secret about slots being a critical part of its business plan for Rosecroft and its executives have said it is unlikely it will hold onto the track if it can't get slots.
Not surprisingly, the Cordish Cos. of Baltimore, owner of the soon-to-open Maryland Live! slots casino near Arundel Mills in Hanover, was not unhappy with the legislature’s inaction on gambling.
"Our position is that now is NOT the time to even discuss expansion of gaming sites in Maryland,” spokesman Joe Weinberg said in an email. “The common sense approach for the General Assembly is to add table games to the five existing authorized locations only, get the Baltimore City and Anne Arundel facilities open and stabilized, and only then, based on actual market performance, to consider the efficacy of expansion."
The Peterson Cos. of Fairfax, Va., developer of National Harbor, did not return repeated requests for comment.
Staff Writer Lindsey Robbins contributed to this report.