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Maryland Gov. Larry Hogan's budget sets up debate on how to spend surplus

Maryland Gov. Larry Hogan's budget proposal includes small tax cuts and less money for Baltimore schools.

Gov. Larry Hogan unveiled a $42.3 billion spending plan Wednesday, promising an array of tax cuts and stashing money in savings.

The proposal set the stage for months of debate on what to do with the state's projected $450 million budget surplus.

The budget provides for tuition to not increase by more than 2 percent at the state's public colleges and universities. It would fund every mandate for K-12 education and give every school district in the state more money per pupil than last year.

State employees would get a raise of up to 4 percent, but as many as 150 people would lose their jobs as the state privatizes positions at hospitals.

Budget Secretary David Brinkley said he was confident the state could find private-sector jobs for that "handful" of workers. He said the budget delivers on the governor's promises.

The proposal would also deliver $36 million in fee and tax reductions this year, partly by speeding up tax breaks already approved by the legislature and partly by making new cuts.

Taxpayers would see "more money in their pockets," Brinkley said. He said the budget reflects Hogan's belief that his policies are encouraging employers to expand, which he said would eventually put more money in state coffers.

"People in Maryland are having a newfound faith in Maryland, especially job creators," he said.

Hogan has described his tax plan as "modest." Legislative analysts suggest it would reduce revenues by more than $100 million a year when fully implemented.

With that amount of money on the table, the legislature's chief budget analyst said, lawmakers could consider broader tax cuts instead of the more targeted ones Hogan proposed.

"The big issues are: Are we going to cut taxes? And if so, by how much?" Warren Deschenaux said. "And are we going to be playing to interest groups? Or are we going to be focusing on competitiveness?"

Much of the state's budget is controlled by laws that mandate spending. Sen. Richard S. Madaleno, the Democratic vice chairman of the Budget and Taxation Committee, said most of Hogan's budget "is on autopilot."

The spending plan does not include any of the money promised to help Baltimore demolish vacant houses, which Hogan this month announced would be part of a $700 million investment in the city.

Most of that figure would come from existing programs, and only an estimated $74 million would be new spending.

Democrats, particularly from the city, were dismayed to see Hogan had not included it.

"The announcement was about $700 million," said Baltimore Del. Maggie McIntosh, the Democrat who chairs the House Appropriations Committee. "Where's the other money? Where's it coming from?"

Hogan spokesman Matthew Clark said the first $150 million was in the current year's budget.

Brinkley said he would put money for demolition in a separate, supplemental budget. The maneuver means that Hogan could use the additional spending as a bargaining chip with lawmakers.

City schools will see a $24 million reduction in state funding next year, thanks to a formula that reduces aid when enrollment declines and as jurisdiction's wealth increases.

The city saw a similar reduction in last year' budget. McIntosh and Baltimore Democratic Del. Mary L. Washington have proposed tweaking the formula to prevent such cuts in the future.

The governor proposed allocating $5.6 million in a onetime grant to three rural school districts where enrollment has been declining.

Democratic leaders said they left a 90-minute briefing with Hogan on Wednesday morning with more questions than answers.

"We look forward to going through the budget and working through it in some details," House Speaker Michael E. Busch said after leaving the meeting held over egg casserole and scrapple at the governor's mansion.

Busch said it was difficult to render an opinion on Hogan's spending plan.

"We don't know until we get all the details," Busch said.

Senate President Thomas V. Mike Miller Jr. noted that the proposal also left out money for Prince George's Hospital Center, a priority for the state's second-largest jurisdiction.

"I guess what that means is it's going to be supplemental budgets," Miller told reporters.

The operating budget leaves about $450 million unspent, even after the state stashes more than 6 percent of its surplus in its 'Rainy Day Fund.' Bond agencies recommend saving 5 percent.

Lawmakers on both sides of the aisle expect to debate whether to spend that money, hold on to it, or return some of it to taxpayers.

Hogan's spending plan suggests he intends to revive debates from last year, including whether the state should create a way to help students pay for tuition to private schools. The governor proposed creating a $50 million pool for tuition grants. The legislature last year resisted using state money to give a tax credit to businesses that donate to private schools.

Another $20 million was set aside in what's known as the "Sunny Day Fund," which is used to induce businesses to stay in the state or expand. In recent years, the fund has either been depleted or lawmakers have used it to bolster a controversial film tax credit.

Separately, Hogan proposed spending $11.5 million on the film tax credit, up from last year.

The governor has proposed eliminating 550 jobs, which would bring the state's workforce to fewer than 50,000 employees. Legislative analysts said that the governor did not specify which agencies would absorb those cuts, nor how many of the jobs are currently occupied.

Patrick Moran, president of the largest state workers union, said the pay bump proposed by Hogan would benefit most, but not all, state employees.

While he allowed that "any raise is a good raise," Moran said the increase wasn't especially generous in view of a large budget surplus and the sacrifices state workers made during recent lean years.

"This is all about marketing and spin," said Moran, president of the American Federation of State, County and Municipal Employees Council 3.

Sen. Andrew A. Serafini, a Washington County Republican on the Budget and Taxation Committee, said the governor's plan was "prudent" and "fulfills what the governor said he would do."

"We would love him to go further on tax cuts," Serafini said. But he said residents will understand the governor's more moderate approach. "They want government to stay within its means."

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Budget proposal highlights

Tax cuts

The governor proposes to cut $36 million in taxes and fees, including new cuts for retirees and small businesses.

College tuition

Tuition at state universities would go up 2 percent next year.

State workers

State employees would get raises of up to 4 percent next year.

Baltimore demolition

No new money is budgeted to demolish vacant houses in the city. That will come in a supplemental budget, the administration says.

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