www.baltimoresun.com/news/maryland/politics/bs-md-omalley-budget-react-20120119,0,2284570.story

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Critics rail against O'Malley's spending plan

Plan denounced over Medicaid cuts, shifts in teacher pension costs and income tax increases

By Annie Linskey and Michael Dresser, The Baltimore Sun

7:05 AM EST, January 19, 2012

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Gov. Martin O'Malley's proposed budget was assailed on many fronts Wednesday as county executives, education advocates, Maryland hospitals and Republican leaders began making their case against the $36 billion spending plan.

Some said cuts in payments to Medicaid providers would lead to higher medical bills for everyone else. Others argued that shifting $240 million in teacher pension costs to the counties would inevitably require cuts to community services — and schools.

Even some leading Democrats in the General Assembly said the governor's proposal to increase income taxes on the top 20 percent of Maryland wage earners would hit people who don't earn enough to afford it.

Republicans were more blunt. "This is just an outrageous kick in the stomach to small businesses and families struggling to make ends meet," said House Minority leader Anthony O'Donnell. He called O'Malley's plan an example of "left wing ideology run amok."

But the legislature's top fiscal analyst said the mix of spending cuts and tax increases would make a significant dent in Maryland's long-term budget problems. And O'Malley defended his approach as tough but fair.

"This is not an exercise in popularity," O'Malley said.

"I don't like doing this," he said. "I don't like asking for this. This is by no means a lack of respect for those we are asking more of. This is the fairest way to go about this."

Under his proposal, 2 in 10 Marylanders would pay more in income taxes. The rate would not go up, but exemptions and deductions would be phased out for higher incomes. For instance, individuals who make more than $100,000 and joint filers earning more than $150,000 would see a phaseout of the $2,400 personal exemption.

Del. Maggie McIntosh, a veteran member of the House leadership, said phaseout levels could be a sticking point. "That's one of the features that's going to make it really tough," the Baltimore Democrat said.

The income tax change would provide more money for the state, which is facing a budget gap of roughly $1 billion. But the change would also provide more money for counties that collect a local piggy-back income tax. And O'Malley would give about $20 million in relief to poorer counties that don't benefit as much from the income tax.

By law, the state must adopt a balanced budget. The General Assembly will spend much of the next two and half months considering possible changes to the governor's plan for the next fiscal year and will have the final say.

New details emerged Wednesday about O'Malley's plan, portions of which had begun to leak Tuesday. The governor wants to collect the state's 6 percent sales tax on some online purchases to which it has not applied. That includes songs and other electronic downloads — meaning that buying a 99 cent song by Shakira on iTunes would cost about $1.05.

O'Malley also said assisted-living facilities at the state's Spring Grove and Springfield hospital centers would be shuttered, causing about 88 residents to be moved to private facilities.

The state's county executives reacted swiftly to the shift in pension burden to their budgets, and several from large jurisdictions returned to Annapolis Wednesday afternoon to give an earful to House Speaker Michael E. Busch and Senate PresidentThomas V. Mike Miller.

"Everybody needs to take a deep breath," said Busch after the meeting. "I think they have legitimate concerns. … There are some issues we need to work through."

Interviewed afterward, several county executives repeated a refrain: The state offsets are not sufficient to cover the new costs this year. And in the future they see no clear way to pay the bill, which is expected to balloon.

Anne Arundel County Executive John Leopold, a Republican, said the pension shift has the potential to cost his county as much money as it stands to gain from taxes flowing from the new casino set to open at Arundel Mills. That revenue loss could thwart his plan to eliminate county employee furloughs, he said.

A spokesman for Baltimore MayorStephanie Rawlings-Blakesaid the shift could "have a negative impact on the city's ability to fund core services."

Howard County Executive Ken Ulman said it would be "crippling" to his budget if he cannot count the new pension costs toward his state-mandated education funding levels.

The state's teacher union said it would resist any K-12 cuts and is prepared to fight hard to make sure classroom spending isn't sacrificed. In Annapolis the group has significant muscle; last year it spent more than any other interest on lobbying.

Sean Johnson, the government relations director for the Maryland State Education Association, said he was "deeply disappointed" in the governor for proposing the pension shift.

"The real concern is it becomes a cut in local education funding," Johnson said.

Environmentalists were among the few advocacy groups with good words for O'Malley's plan, saying a higher "flush tax" would provide improvements to sewage treatment plans that would benefit the Chesapeake Bay.

Praise for the plan came from one usually gloomy source: Warren Deschenaux, the state legislature's top fiscal policy analyst. He said O'Malley's proposed budget comes as close as any in recent years to solving the long-term imbalance between state revenues and expenditures.

"They've been whittling, now they are actually sculpting," he said. "The question is, will people like the art?"

annie.linskey@baltsun.com

tiwtter.com/annielinskey

michael.dresser@baltsun.com

twitter.com/michaeltdresser

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