MD House, Senate reach budget deal; final votes still to come

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ANNAPOLIS — House and Senate appropriators on Friday reached an agreement on next year’s budget, appearing to seal the deal on the cuts and tax hikes necessary to cover a massive projected shortfall and resolving their differences over how to generate revenue for transportation projects and services.

Friday’s agreement paves the way for the House and the Senate to pass a final budget bill before the session concludes Monday night.

In approving a new 3% tax on IT and data services, lawmakers agreed to exempt sales of cloud computing to certain cybertechnology or cybersecurity businesses with the intention of protecting the industry, including businesses that contract with the federal government and particularly the Department of Defense.

“We wanted to, as well as the governor, grow business in Maryland, particularly when it comes to cyber, when it comes to quantum,” House Ways and Means Chair Vanessa Atterbeary said to reporters. “We didn’t want to be a hindrance to that.”

Members of the state’s business community have raised concerns about the new “tech tax” hurting small businesses and providing a disincentive to companies coming to Maryland, potentially running counter to the governor’s plans for driving growth in the state’s stagnant economy.

Gov. Wes Moore and top Democrats in the legislature, though, have pushed back on claims from members of the business community that a new 3% tax on information technology and data consulting services will hurt the governor’s mission to make Maryland more economically competitive and a hub for technology and similar industries.

In a surprise development, lawmakers also adopted a change to their merely one-year-old plan for the state to assume ownership of and take on major renovations to Pimlico Race Course in Baltimore, beginning an era of state oversight of thoroughbred horse racing, a storied but beleaguered industry.

Under next year’s budget, the state will retain oversight of Pimlico and racing and oversee a new nonprofit that will run day-to-day racing and training operations in Maryland, but it will eliminate the Maryland Thoroughbred Racetrack Operating Authority, which lawmakers created in 2023, in part to oversee the transition to state ownership and oversight.

The operating authority, led by Greg Cross, a Venable attorney who was the state’s lead negotiator in acquiring Pimlico, was initially set to end in 2029. Eliminating it at the end of the current fiscal year, on June 30, will remove nearly $3.5 million in annual salary and operating costs from the state budget.

The Maryland Stadium Authority and the Maryland Economic Development Corporation will assume oversight of the responsibilities that had fallen to the operation authority, including oversight of the new nonprofit, The Maryland Jockey Club.

The change isn’t expected to have any impact on the state’s renovation plans at Pimlico.

“We just wanted some more oversight to be able to understand and know what’s going on in real time, which wasn’t happening,” Atterbeary said.

Bill Knauf, a former New Jersey racing executive who was named as the first president and general manager of the nonprofit, declined to comment when reached by text message.

In a statement, a spokesperson for the Maryland Thoroughbred Horsemen’s Association said that, “the purpose for the (Maryland Thoroughbred Racetrack Operating Authority) has been fulfilled and it is now time to completely transition Maryland thoroughbred racing to The Maryland Jockey Club.”

After convening their first conference committee meeting Thursday, lawmakers had yet to agree on whether to adopt a new fee for tire purchases, how much to raise the vehicle excise tax and whether to tax car rentals, among other differences in their approaches.

On Friday, they agreed to adopt a $5 fee for tire purchases, raise the vehicle excise tax from 6% to 6.5%, and implement a 3.5% excise tax on short-term vehicle rentals.

Lawmakers have also have agreed to divert revenue from the 2% capital gains surcharge, double titling fees, accelerate vehicle registration fee increases and to raise vehicle emissions inspection fees, among other measures.

Without a silver-bullet option to replace declining revenue from gas taxes that have for decades fueled transportation budgets, lawmakers and transportation officials have been looking for ways to cover the state’s growing transportation budget deficit — separate from the general operating budget hole — without cutting road, bridge and transit projects or services.

Top Democrats already had mostly agreed on a broader tax and fee package, which would generate more than $1.5 billion to help close a roughly $3.3 billion projected budget deficit.

Their plan also includes more than $2 billion in cuts and cost savings.

The tax and fee package is bolstered in large part by taxing IT and data services, but it also includes extensive changes to the state’s income tax requirements and a 2% surcharge on capital gains income.

(Editor’s note: A previous version of this article incorrectly stated that the state would be dissolving The Maryland Jockey Club, the nonprofit that will run day-to-day racing and training in Maryland. Rather, lawmakers have decided to eliminate the Maryland Thoroughbred Racetrack Operating Authority, created, in part, to oversee the transition from private- to state-ownership and operation of the industry.)