Closing tax loophole could add funding for school construction

February 03, 2005|by TAMELA BAKER

ANNAPOLIS - A tax loophole that allowed purchasers of certain commercial properties to avoid the state's transfer tax would be closed under legislation co-sponsored by Del. John P. Donoghue, D-Washington, and the bulk of the money collected from the tax would be spent on school construction.

House Democrats announced Wednesday that if the bill is approved, it will help fund their pledge to raise the level of school construction funding in the state's capital budget from the $157 million proposed by Gov. Robert Ehrlich to $250 million. The plan also would use money from the state's rainy day fund to build schools, according to House Speaker Michael E. Busch.

The state must keep the equivalent of 5 percent of its budget in the rainy day fund to maintain its AAA bond rating. Busch said that fund has a surplus of more than $200 million, and more is anticipated after the General Assembly completes budget work this year - enough to repeal a 5 percent property tax imposed by the Ehrlich Administration two years ago.


"We're going to finally close this loophole that has been draining the coffers of local governments for years and years," said co-sponsor Del. Anne Healey, D-Prince George's.

If the loophole is closed, it would generate more than $500,000 in Washington County from fiscal years 2007 through 2009, according to estimates from the Department of Legislative Services. Of that, more than $400,000 would be designated for school construction.

Ehrlich said Wednesday that if the loophole is closed, the transfer tax should be applied to Program Open Space, a green space program that has suffered substantial cuts in recent years. Projected revenue from closing the loophole "doesn't even scratch the itch" for school building construction," Ehrlich said, reiterating his call for legalizing slot machine gambling in Maryland.

"I know it sounds like a broken record," he said, "but it's time to get a bill done."

He added that not legalizing slots "has not stopped one Marylander from playing slots - it's just stopped them from playing slots in Maryland."

He hinted that House Democrats were trying to take attention away from slots. Ehrlich has promised that if slots were legalized, he would set aside $100 million in new money for school construction each year.

But Donoghue said party politics was not his motivation in co-sponsoring the bill, and that he didn't believe it was the motivation for the Democratic leadership. "I certainly didn't support that to embarrass anybody," he said. "If slots wins, we'll have even more money for school construction."

A similar bill was approved by the House of Delegates last year but died in the Senate.

Washington County legislators supported the bill last year, said Del. Robert A. McKee, D-Washington.

"To me, it's a fairness issue," McKee said.

House Bill 1

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