When the General Assembly convenes Monday in a special session, it will consider an increase in the state’s income tax for about 16 percent of Maryland residents, according to the governor.
Raising the tax is part of a fiscal 2013 budget compromise crafted by legislative leaders and announced by Gov. Martin O’Malley on Wednesday in Annapolis. The compromise is closely modeled on an agreement lawmakers reached in April, but includes more spending cuts than what initially was proposed, O’Malley said.
Lawmakers didn’t pass a revenue package before the regular session adjourned April 9, triggering more than $500 million in cuts to O’Malley’s proposed budget that will take effect in July if additional legislation is not adopted.
O’Malley said the special session, which he called on Friday, would focus exclusively on the budget.
“To leave this budget as it stands right now would damage the very forward motion that all of us, together, have worked so hard to achieve,” O’Malley said.
The new plan contains almost $109 million in spending reductions from the $35.9 billion budget proposed in January, decreasing general fund spending by $380 million, O’Malley said. The state’s projected fund balance will increase from the $164 million initially proposed to $204 million, he said.
The compromise tax plan would raise $195.6 million in state revenue in fiscal 2013 through income tax hikes and $51.7 million by phasing out personal exemptions. The tax changes would affect single Marylanders making more than $100,000 a year and couples earning more than $150,000, which is about 16 percent of the state’s population, O’Malley said.
Maryland’s $1.1 billion structural deficit will decrease by more than half, O’Malley said.
Much of the spending cuts come from an over-projection in Medicaid spending of about $80 million, O’Malley said.
The surplus in the publicly funded health program stems from changes in drug-company reimbursements that are part of federal health care reform efforts.
The compromise budget plan also will include a provision to shift 50 percent of the “normal cost” of teacher pensions, or $136.6 million, to counties beginning in fiscal 2013, O’Malley said. The normal cost of pensions is the amount needed to pay pension liabilities if the system hadn’t been underfunded in the past.
The shift is front-loaded and will increase to 100 percent of the total normal costs in fiscal 2016. The same shift provisions were agreed to by House and Senate budget negotiators before the end of session.
The governor joined House Speaker Michael E. Busch (D-Dist. 30) of Annapolis and Senate President Thomas V. Mike Miller Jr. (D-Dist. 27) of Chesapeake Beach to announce details of the session and the budget compromise in Annapolis.
“I don’t think that we can let those inactions [of the regular session] go unaddressed,” Busch said. “I think it’s incumbent for us to come back here.”
The session is expected to last no more than three days, officials said.
The compromise will be introduced as regular bills, O’Malley said.
House Republicans have said that the state should accept the cuts included in the default budget, which represents a $700 million increase over the fiscal 2012 budget, rather than reconvene to raise taxes.
A second special session is still expected this summer to address a possible expansion of gambling in the state to include Las Vegas-style table games and a casino site in Prince George’s County.
O’Malley said he would ask Busch and Miller later this week to assign members of each chamber to a workgroup to study the effects of such an expansion.
“At a second date, later on this summer, we can come together, properly prepared, to address the issues of gaming,” O’Malley said.