Budget standoff broken, but no agreement yet

General Assembly negotiators broke a prolonged standoff over the state budget late Thursday as the Senate agreed to spare Marylanders making under $100,000 any income tax increase.

The Senate proposal did not resolve the budget issues still facing the legislature with only four days remaining before the scheduled end of its 90-day session, but it represented visible progress for the first time since face-to-face negotiations opened Monday.

House Majority Leader Kumar Barve, one of the conferees on the income tax bill, praised the Senate offer and said the House team would meet to discuss it.

"It's a very good-faith offer to come to the middle," said Barve, a Montgomery County Democrat.

The tax bill has been the most contentious part of a package of budget-related bills that has slowed progress on other significant legislation facing the General Assembly as it nears adjournment Monday night.

The version of the tax bill that passed the Senate would have raised more than $400 million next year by increasing income tax rates on all but the lowest-income Marylanders. The House rejected that approach, concentrating all of its rate increases on people making $100,000 or more. But that proposal raised only about $191 million, an amount senators considered too little to close the state's roughly $1 billion long-term funding gap — known as the structural deficit — without coming back for more revenue next year.

The Senate proposal would roughly split the difference, raising $309 million. It does so by imposing larger increases in the higher tax brackets than its previous bill did while exempting those making under $100,000. The Senate plan would also move in the direction of the House and Gov. Martin O'Malley's original budget proposal by raising $109 million of that money through a phase-out of exemptions.

Under the Senate plan, single Marylanders making under $100,000 and joint filers making under $150,000 would pay a little more because the personal exemption would be lowered from $3,200 to $3,000. That amounts to an estimated increase of $40 a year for a family of four making $50,000.

For individuals making $100,000-$125,000 and couples making $150,00-$175,000 the exemption would drop to $1,500, and it would disappear entirely for single people making over $150,000 and couples earning $200,000.

Among the other changes the Senate proposed was to drop the so-called "super-bracket" that would have taxed every dollar made by those who earned $500,000 or more at the highest level, said Sen. Edward J. Kasemeyer, chairman of the Budget & Taxation Committee and the Senate's chief negotiator.

Kasemeyer said the proposal was the result of behind-the-scenes talks with key House members. "We've had this conversation under way for quite a while," said Kasemeyer, a Howard County Democrat. He said senators heard the House message that they didn't want to raise taxes on people making less than $100,000 and tried to accommodate that position.

In another key concession, the Senate agreed to the House approach to the first year of a planned shift of some teacher pension costs from the counties to the state. The Senate had come in with a four-year phase-in, while the House proposed three. Kasemeyer said the two sides could decide how to handle subsequent years at a later date.

Kasemeyer said the plan would eliminate more than 55 percent of the remaining structural deficit, putting the state on the path to eliminate it next year.

Earlier in the day, Senate President Thomas V. Mike Miller complained about the pace of progress and warned that the legislature might be forced into an extended session — a prospect dreaded by virtually all lawmakers — for the first time since the early 1990s.

It was unclear late Thursday when the conference committees on the revenue bill, the budget bill and a companion measure that includes the pension shift would meet again. The only budget matters to be discussed tomorrow morning are likely to involve capital projects.

"Hopefully, sometime later in the day or on Saturday, this group will come together and 'Kumbaya' will be sung," said Warren Deschenaux, the Assembly's chief budget analyst.