Franchot: Hold the Line on Taxes

Maryland comptroller Peter Franchot sounds like he could fit in well as a member of the 6th District legislative delegation.

He believes the state should cut spending before raising taxes. He thinks using one-time federal stimulus money to fund programs was shortsighted. And he doesn’t always toe the Democratic Party line.

“I love the Democratic Party, but I’m not a robot,” Franchot said during an interview Thursday at the Eagle office. “People like that I’m independent, willing to put my hand up once in a while.”

With a $1.8 billion budget deficit looming over the state, Franchot plans to put his hand up if the state government attempts to raise existing taxes and create new ones, such as was done during a special session prior to the 2007 legislative session.

That year, the state was attempting to cover a $1.5 billion deficit.

State Sen. Norman Stone and his 6th District colleagues, delegates Joseph “Sonny” Minnick, Michael Weir Jr. and John Olszewski Jr., have often gone on record as opposing new and higher taxes in favor of curtailing state spending.

“That’s exactly right,” Stone said. “At least we agree on that. Our delegation is fiscally conservative, and we’ve said [the state needs to control spending, not raise taxes].”

Franchot does differ from the 6th District delegation on at least one key issue: He was a staunch opponent of legalizing slot machines while a delegate from Montgomery County and continues that stance as comptroller.

Stone and the local delegates favor slot machines, which were legalized by a statewide referendum in 2008.

“It’s bad policy for the state to rely on gambling for revenue,” Franchot said during last week’s interview. “But I’ve turned the page on that issue.”

The immediate concern is not to burden people with more taxes, Franchot said.

“Individuals in Dundalk are tightening their belts, businesses are counting their pennies, but state government is not cutting back,” Franchot said.

“That’s foolish. We need to reform state spending before we talk about any tax increases. The public is under such financial stress, they can’t afford any more tax increases.”

Tax revenues collected from Baltimore County have fallen by almost 20 percent, Franchot said.

“The national economy is a mess, and having a dramatic impact on the economy in Maryland,” he said. “I see that reflected in the tax revenue we collect each month.

“The falloff is stunning. Not just that the state is getting less in taxes, but that families are losing so much wealth. It’s something that is very troubling. Working families are seeing their home values decline and their savings decline. That’s a lot scarier things for us than seeing a few millionaires lose money.”

The state needs to emulate those families, Franchot said: tighten belts, reduce spending and ride out the recession.

Maryland faces another huge deficit just two years after raising taxes, due to the impact of the national economic downturn and failing to control spending.

“There was additional spending,” Franchot said. “And now we’re worse off.”

Federal stimulus funds

The state economy is currently being held together by the one-time infusion of $3.9 billion from the U.S. government as part of the stimulus package.

“It’s nice to get, but in an odd way it delays the inevitable,” Franchot said. “Which is that we’re spending much more money than we’re taking in.

“We appreciate the stimulus money, but it won’t bring us out of the recession.”

During the 2009 legislative session, Stone and the 6th District delegates opposed using stimulus money to fund ongoing programs.

“You don’t want to start a program you can’t fund in the following years,” Stone said.

Doing that, Franchot said, will leave Maryland weaker when the economy eventually improves.

“When we come out of the recession, we’ll be a stronger state with good bones,” he said. “But we don’t want to come out of it with unsustainable spending plans. We need to get ahead of the curve, make sure our fiscal house is in order by reforming spending and making sure of our revenues.”

Collecting revenues

For his part, Franchot is trying to increase state revenues in his job as Maryland’s tax collector by closing loopholes and cracking down on corporate tax cheats.

“We need to make sure every dollar owed the state under existing tax laws is collected before we think about new taxes,” he said.

To this end, according to Franchot, the comptroller’s office is:

• Aggressively pursuing nearing $500 million in taxes owed to Maryland by companies sheltering their income through Delaware Holding Company tax schemes;
• Successfully cracking down on a corporate tax loophole known as “captive” Real Estate Investment Trusts (REITS) deductions, which allowed companies to shelter significant amounts of taxable income;
• Intercepting taxes owed to Maryland by federal contractors, using the first-in-the-nation Federal Vendor Offset program (under which the U.S. government withholds money from contractors who owe taxes to Maryland). This is expected to bring in at least $20 million its first year;
• Supporting legislation to crack down on companies that misclassify their employees as independent contractors in an attempt to avoid paying their fair share of taxes and deny their workers the pay, benefits and protections they deserve.

This will recoup an estimated $140 million if the bill is passed.

• Modernizing the state’s tax collection system, doubling the number of corporate auditors, and attracting and retaining the most qualified tax collectors.

“Ninety-five percent of people pay their taxes on time,” Franchot said. “Five percent cheat deliberately. We’ll leave the 95 percent alone, focus all of our auditing efforts on the 5 percent who thumb their noses at the state.”

Local issues

As comptroller, Franchot sits on the Board of Public Works with Gov. Martin O’Malley and Treasurer Nancy Kopp.

Last week, the board voted 3-0 to approve $1.7 million for the Watersedge Community Center. That money was a reimbursement for Baltimore County, which already provided the funding to build the new facility.

Although the controversial proposed liquefied natural gas facility at Sparrows Point is unlikely to come under his jurisdiction, Franchot said he is opposed to the project.

“I’d vote against it,” he said. “Surely there is an alternative. But don’t put it in a densely populated area you don’t think has the political clout to fight it.”

Franchot opposes the LNG facility despite the potential tax revenue from the business.

“My job is not to simply look for things to fill the state revenue bucket every way I can,” he said. “We need to patch the holes in the bucket, need to spend taxpayers’ money more efficiently, effectively.

“People are very anxious right now over their homes and the economy. They cannot afford the luxury of supplying the state of Maryland with every dollar it wants.”

The comptroller’s office also has been cracking down on video gambling machines, cooperating with police and sending warning letters to businesses with retail alcohol licenses.

“The machines are illegal, and we’ll continue to confiscate them,” Franchot said. “If we see video gambling machines in an establishment while we’re making an inspection, we’ll report them to local law enforcement.”

The letter, sent out to 7,000 businesses, had the desired effect, he said: “A lot of them voluntarily surrendered their machines. They said they didn’t realize they were illegal.”

The future

Franchot was asked about the rumored plans of Baltimore County Executive James T. Smith Jr., who cannot run for re-election due to term limits but has been raising a tremendous amount of campaign money and is considered a possible opponent for Franchot in the 2010 Democratic primary.

“I think all of us are focused on the economy right now, focused on helping us get out from under this calamity that’s hit us,” Franchot said. “There’ll be plenty of time next year for politics.

“This recession will be over. Like every recession, there is an end and a recovery. But it won’t be anytime soon. And there’s an area where Democrats, Republicans and Independents are all in consensus: no tax increases, no new taxes, until the recession is over.”

After being elected in 2006, Franchot made it clear he would use the office of comptroller to oppose slot machines, promote the biotechnology industry and support environmental initiatives – things that don’t really fall under his job description.

Senate President Thom-as Mike Miller Jr. made a statement after the election that Franchot needed to learn he was elected to be a tax collector, not a policymaker, while a spokesman for O’Malley stated during the campaign that Franchot needed to remember he was running for comptroller, not governor.

Franchot played down the perception that he often clashes with O’Malley.

“Ninety-eight percent of the time, we agree,” he said. “The other 2 percent are issues that are bad for the taxpayer, and I put my hand up. And those are the times that get a lot of attention.”

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