O'Malley defends plan to raise taxes

Gov. Martin O'Malley on Wednesday defended his proposal to ask 20 percent of Marylanders to pay more income taxes, calling his budget plan "a balanced approach" that preserves funding for priorities such as education.

At a budget briefing, the governor also explained why, after years of pressure, he decided to propose shifting more than $200 million in teacher pension costs from the state to the counties.

On his proposed changes to the income tax — the rate would stay the same but deductions and exemptions would be phased out for those making over six figures — O'Malley said: "I don't like doing this. I don't like asking for this."

"This is by no means a lack of respect for those we are asking more of," O'Malley, a Democrat, said. "This is the fairest way to go about this."

The income-tax change would provide more money for the state, which is facing a budget gap the administration puts at $940 million. But the change also would provide more money for counties that collect a local piggy-back income tax. O'Malley's proposal includes about $20 million in relief for poorer counties that don't benefit as much from the income tax.

The governor estimated that a Maryland family making $150,000 would pay an additional $191 a year because of the changes he is proposing. The tax rates and brackets would not be changed.

Exemptions would begin to phase out for individuals earning about $100,000 while couples filing jointly would begin to lose those breaks starting at about $150,000. Deductions would start phasing out at $150,000 for individuals and $200,000 for joint filers.

Another tax that would increase under the plan is the levy on tobacco products other than cigarettes. And the state's 6 percent sales tax would be applied to some on-line sales on which it has not been charged, a move O'Malley presented as fairness toward Maryland retailers.

O'Malley briefed reporters on his spending plan for the fiscal year that starts July 1, devoting much of an hour-long presentation to click through a PowerPoint presentation. Many of the details about his plan leaked Tuesday, after the governor briefed top Annapolis lawmakers and county leaders.

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

During the briefing, O'Malley explained a decision to shift $239 million in pension costs to Baltimore City and county governments, a change that he'd resisted in recent years. He said that local governments, which set teacher salaries, should feel the pension consequences of those decisions.

"I have become convinced that there is some merit to the argument that the Senate president [Thomas V. Mike Miller] has made year after year," the governor said. Two years ago the Senate passed a measure that would have moved a smaller fraction of the estimated $955 billion annual pension costs to locals.

The shift is likely to set up a fight between county leaders, who may want the flexibility to reduce classroom spending so they can afford the new pension costs, and education advocates who will resist any K-12 cuts.

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 proposed budget, as in the past two years, includes a 3 percent hike to tuition at state universities.

The governor also wants to close two assisted living facilities, at Spring Grove Hospital Center in Catonsville and Springfield Hospital Center in Sykesville. The governor said his plan would eliminate 149 state jobs, mostly related to those centers closing.

State employees would receive a 2 percent cost-of-living increase starting Jan. 1, 2013, along with five paid days off as compensation for furloughs during the economic recession.

Annie.linskey@baltsun.com

Michael.dresser@balltsun.com

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