EHRLICH VETOES TAX PACKAGE

But Governor Signs CareFirst Legislation, Medical Marijuana Bill;
Corporations Put Ahead of Citizens, Critics Say

Gov. Robert L. Ehrlich Jr. knocked the state budget out of balance
yesterday by vetoing a $135 million corporate tax package, and he also
rejected legislation permitting undocumented immigrants to pay
in-state tuition at Maryland universities.

But the governor today signed legislation reforming the CareFirst
BlueCross BlueShield board of directors. The bill would strengthen the
state's control of Maryland's largest health insurer.

The insurance reform bill made it through the legislature without
significant opposition because of anger over a $119 million bonus plan
for executives who negotiated a proposed sale of CareFirst to a
California insurer.

The bill was rushed through the House and Senate after state Insurance
Commissioner Steven Larsen rejected the $1.3 billion purchase of
CareFirst by California-based WellPoint Health Networks Inc.

The bill requires CareFirst to continue to operate as a nonprofit
insurer and forces the replacement of almost half of its board by December.

The governor also signed a bill today reducing penalties for the use
of marijuana for medical purposes.

The law does not legalize marijuana, but reduces the fine to a maximum
of $100 with no jail time. Defendants, however, must convince a judge
they need marijuana for medical reasons. Previously, possession or use
of marijuana brought penalties of up to a year in prison or a $1,000
fine.

Ehrlich's long-promised veto of the corporate tax package -- among 19
issued yesterday -- was criticized by Democrats who said the governor
was placing corporate profits ahead of the needs of average citizens.
The governor brushed aside those concerns, saying he was ushering in a
new chapter in state governance.

Fiscal responsibility is in, he said, and the days of trading votes
for expensive new programs is over. "Elections have consequences,"
Ehrlich said. "These are tangible results from an election where
people said, 'We want change.' "

The governor said he and his staff vigorously debated the merits of
some of the most contentious measures passed by the General Assembly
this year but haven't finished their work.

Other decisions announced yesterday mean that speed-radar cameras will
not be legalized and walking will not be designated as the official
state exercise. "We found that walking was not indigenous to
Maryland," Ehrlich said, planting his tongue in cheek. "We're trying
to get away from the era of silly bills."

The era will not start immediately, however: The governor released a
list of bills he plans to sign into law today, including legislation
designating the thoroughbred as the state horse.

The debate over the tax bill consumed Annapolis yesterday, taking on a
sharply partisan tone. Senate President Thomas V. Mike Miller and
House Speaker Michael E. Busch, both Democrats, accused Ehrlich of
reneging on his pledge to govern as a moderate.

By rejecting revenue used to balance the $22.4 billion budget, they
said, the governor will force deep cuts that will violate his campaign
promises to protect state workers, schools and local governments from
fiscal harm.

The bill would have prevented companies from avoiding Maryland taxes
by transferring assets to holding companies in Delaware. It also would
have imposed a 2-percent tax on health maintenance organization
policies, and impose a 10-percent corporate income tax surcharge for
three years.

"Life is about choices, and I believe the governor is making the wrong
choices," Miller said.

Miller and Busch said the legislature may try to override the
corporate-tax veto when it reconvenes in January.

The governor has yet to announce how he will fill the budget hole
created by the tax-bill veto. Hours before issuing his decision,
Ehrlich defended his budget-cutting plans at a morning Board of Public
Works meeting. He said he has ordered all department heads to cut 7
1/2 percent from the budget that begins July 1, noting that
skyrocketing Medicaid expenses must be curtailed.

But Comptroller William Donald Schaefer, who has been an Ehrlich ally,
criticized the governor's approach, saying that people would be hurt.
"You just can't say to people, we're going to knock you off the roll,
we're going to knock you out of the game," Schaefer said. "You just
can't take that 7 1/2 percent."

Other leading Democrats also reacted angrily to the governor's
decision to allow corporate tax-avoidance while cutting the budget. A
few weeks ago, Ehrlich signed off on an increase in the state portion
of property tax bills that would add $96 a year to taxes of the owner
of a home assessed at $200,000.

"People would very much support fairness in our tax code and having
corporations pay their fair share," said Baltimore Mayor Martin
O'Malley. In a statement released later in the day, the mayor said:
"When all of us get our higher property tax bills next year, we need
to remember that the governor who promised he wouldn't raise our taxes
raised our taxes, but preserved corporate loopholes."

The advocacy group Progressive Maryland raised ethical questions
yesterday about Ehrlich deciding on the tax bill, noting that
Ehrlich's wife, Kendel Ehrlich, is an employee for Comcast; in a story
on Delaware loopholes published last month, the Philadelphia Inquirer
reported that Comcast uses 400 Delaware subsidiaries to avoid taxes.
Kendel Ehrlich said yesterday that she was not familiar with the tax
issue and had not talked to her husband about it.

Ehrlich had indicated support for the medical marijuana bill early on
- -- despite opposition from some Republicans -- because of his belief
that people can differentiate between legalizing the drug and allowing
those dying of chronic illnesses to alleviate their pain.

"This is a position I've had for many, many years," Ehrlich said at
today's signing ceremony. "It is not without controversy. It's not
without controversy across parties, across chambers, across states,
across the country."

Backers of the legislation say smoking marijuana can ease the symptoms
of serious illnesses such as cancer, HIV or AIDS, multiple sclerosis
and Crohn's disease, and help patients suffering from nausea hold down
food and medications.

Opponents, including White House drug czar John P. Walters, had been
pressuring Ehrlich to veto the measure, which they say offers a false
and illegal remedy to the sick.

"Research has not demonstrated that smoked marijuana is safe and
effective medicine," Walters said in a statement issued before the
governor signed the bill. "Legalizing smoked marijuana under the guise
of medicine is scientifically irresponsible and contradictory to our
high standards for approval of medications."

Ehrlich, however, said he didn't think signing the bill would damage
his relationship with the White House.

"Certainly we received a lot of pressure from the administration," the
first-term governor said. "This is an issue I have dealt with for a
decade. My views are well known."

Nine states now have medical marijuana laws including Maryland,
Hawaii, Oregon, Alaska and California.

Hispanic activists condemned Ehrlich's veto of the immigrant tuition
bill, which would have allowed undocumented immigrants who graduate
from Maryland high schools to pay the lower in-state tuition rates. It
conflicts, they said, with his earlier pledges to show compassion for
people in need.

"We believe this bill was pro-kid and pro-education, and we believe
this is a sad statement for a governor who said no child will be left
behind," said Kimberley A. Propeack, an attorney with the Maryland
Latino Coalition for Justice.

Ehrlich said he vetoed the bill in part because "we are slowly
chipping away at this central goal of citizenship," and also because
the measure was at odds with a 1996 federal immigration reform law.

Propeack disputed the claim, saying the Attorney General's office
released an opinion during the session stating that the legislation
was acceptable. "I think it is a shame the governor was so
misinformed," she said.

Also among the bills vetoed were some of the top legislative
priorities of Montgomery County Executive Douglas M. Duncan -- a
potential Democratic challenger in the 2006 gubernatorial election.

Those included a local bill that would have allowed the county to
raise $18 million for transportation by imposing a $27 fee on
vehicles, and a measure allowing local jurisdictions to use radar
cameras to enforce speed limits.

Ehrlich said local governments should not use state revenue sources to
raise funds, adding that he has legal concerns about radar cameras in
residential neighborhoods.

Duncan said he will seek a legislative override of the vehicle
surcharge bill, a major part of the funding of his "Go Montgomery!"
transportation initiative. He said the veto would prevent the county
from moving ahead with road improvements and mass transit projects.

Duncan, whose county has a sizable population of Hispanics and other
immigrants, said Ehrlich's veto of the tuition bill was
"mean-spirited."

Two other vetoes issued yesterday include:

A bill to create stricter energy standards for certain products,
including torchiere lamps and ceiling fans, sold in the state. Home
Depot lobbied against the bill, and Ehrlich said a state setting rules
for such products was bad for business.

Legislation that would have prevented a new bar in Baltimore's vibrant
Canton neighborhood, saying state law should not be used to settle a
local dispute. The proposed bar would be operated by longtime GOP
supporters who have raised money for Ehrlich.

Among the bills to be signed today is a measure changing the state
pension board membership, passed in the wake of a scandal involving
stock bought under questionable circumstances by an investment firm.

The bill was opposed by Schaefer, who leads the pension board, in part
because it removed the state school superintendent from the board.
Following Schaefer's lead, the board had urged Ehrlich to veto the
measure.