May17,2001

The Honorable Thomas V. Mike Miller, Jr.
President of the Senate of Maryland
State House
Annapolis MD 21401-1991

Dear Mr. President:

In accordance with Article II, Section 17 of the Maryland Constitution, I have today vetoed Senate Bill 455 - Critical Skills and Occupations - Income Tax Credit for Individuals.

Senate Bill 455 creates an income tax credit of up to $1,500 for tuition and related expenses that are required for enrollment in an approved program that provides training in skills that are in short supply and critical to Maryland's economic development strategy. The credit against the personal income tax is 30% of up to $5,000 in qualified expenses, subject to an income cap. The Secretary of the Maryland Higher Education Commission (MHEC) is required to identify and designate work-related skills that are in short supply and establish a list of approved programs that qualify for the tax credit. The bill is identical to legislation I vetoed after the 1999 Session (Senate Bill 423 and House Bill 1176).

Addressing the shortage of critical skills in Maryland's workforce has been an ongoing priority for both my Administration and the General Assembly. In 1998, we worked with the Legislature to establish the Maryland Science and Technology Scholarship Program which grants scholarships to students who maintain a 3.0 average in fields such as computer science, engineering and technology-related disciplines where qualified applicants are in short supply. To retain the scholarship, recipients must agree to work in their fields in Maryland after finishing their degrees. During the 1999 Session, I proposed and the General Assembly enacted the Maryland Teacher Scholarship Program to address the State's critical teacher shortage. The Legislature also enacted House Bill 9, which provides income tax credits and other incentives to attract and retain qualified educators. This incentive program is expected to cost approximately $25 million when fully phased-in. Additionally, in fiscal year 2001, we began phasing-in other disciplines under the HOPE Scholarship Program, concentrating first on those academic fields with shortages of employees with critical skills. In FY 2002, $21.8 million was appropriated for this program. During the 2001 Session, the General Assembly passed and I signed House Bill 13, which establishes the Skills-Based Training for Employment Promotion (STEP) Pilot Program. This innovative program will provide grants to local workforce investment boards to fund skills-based, employer-based training and wraparound services for specified low-income individuals with dependent children and proven work histories. I included $1 million in the FY 2002 supplemental budget for the first phase of the STEP program.

While I agree with the sponsors of Senate Bill 455 that we should do more to train students and employees in the skills that are critical to Maryland's economic development future, I cannot support the legislation in its present form. I expressed numerous concerns with the 1999 bills and offered to work with the General Assembly to develop a less expensive, narrowly tailored approach to encourage critical skill training. Unfortunately, the General Assembly chose to pass the identical legislation I vetoed. My concerns, however, have not changed.

First and foremost, I am concerned that the legislation could be prohibitively expensive, easily costing up to $20 million annually, if implemented consistent with the bill's intent. While the State would determine what skills and occupations are eligible, it would have no control over the number of participants involved. It is certainly reasonable to expect that a list of skills and occupations in short supply will include fields already targeted in the above mentioned scholarship programs, as well as nursing, agriculture, tourism and a host of work-related skills such as electronics repair and software development. MHEC has identified 74,500 students, for example, who are enrolled in colleges, universities and private career schools in the fields of nursing, teacher education and science and technology, many of who could be eligible for the tax credit.

Second, the program is too unfocused and open-ended. It grants MHEC broad authority but with little guidance to designate skills and occupations that would be eligible for the tax credit. Once skills and occupations are identified, virtually any apprenticeship, skill training, or other program of study in those disciplines could qualify.

My third concern is that the program could overlap with, and to a certain extent devaluate, the Science and Technology, Teacher, and HOPE Scholarship programs. Under the bill, a student studying computer science could receive a $3,000 HOPE scholarship to cover tuition and fees and potentially receive an additional $600 tax credit for the remaining $2,000 in tuition costs. A student with less than a B average could potentially receive a $1,500 tax credit. I question whether students receiving these scholarships should receive alternative State education assistance through a tax credit and why the bill does not prohibit this.

My fourth concern is that the tax credit provides little incentive for the people who most need help with training. Lower-income citizens in particular will not be as greatly assisted under this approach as they are with the HOPE scholarship programs. I believe we should consider alternative approaches such as the recently enacted STEP pilot program which, if it proves successful, should be expanded to more areas of the State. Finally, the legislation contains no sunset provision to allow the Administration and General Assembly to review the program to determine its success or failure.

The Honorable Thomas V. Mike Miller, Jr. May 17, 2001 Page Three It is worth noting that the 2001 Session of the General Assembly was, at times, dominated by a discussion of responsible fiscal policy. Much debate surrounded the adequacy of our efforts to meet the health care needs of our citizens. In addition, despite a $1 billion increase in the State's base budget contribution to K-12 education over the past 7 years, there is continued and warranted interest in significantly enhancing funds for this purpose. In the midst of these debates, the General Assembly passed legislation, like Senate Bill 455, that reduced the amount of revenue available to the State to meet these needs. Overall, legislation passed in the 2001 Session resulted in increased mandated expenditures of over $35 million in FY 2003, and revenue loss of over $10 million next year. Several of these initiatives involve significant commitments in future years. While many of the policies adopted this year are defensible, it is clear to me that we should not proceed with a new tax credit program that could cost an additional $2.5 million to $20 million loss in annual revenues.

While the above concerns prevent me from signing Senate Bill 455 into law, I want to reiterate my willingness to focus additional efforts on meeting the State's critical skills needs. During the 2001 Interim, the Maryland Higher Education Commission is undertaking a comprehensive review of all scholarship programs. Part of the Commission's focus will be on scholarship programs that address the critical skills needs of Maryland employers. The use of tax credits to encourage critical skills training will be examined as part of this comprehensive review.

For the above reasons, I have vetoed Senate Bill 455.

Sincerely,
Parris N. Glendening
Governor