O’Malley budget expected to call for Maryland tax increases

After months of hinting about tax increases and more spending on infrastructure, the budget battle lines in Maryland will be clearer Wednesday when Gov. Martin O’Malley submits his proposal.

Mr. O’Malley, a Democrat, is expected to submit a budget that will call for increases in the state’s gas tax and “flush tax” and could trim the state’s $1.1 billion structural deficit in part by forcing counties to pay a larger part of state-supported teacher pension benefits.

The governor has spoken in generalities of the need this year for a “balanced approach” with possible tax increases. But his proposed budget will clarify his goals and provide a starting point for the General Assembly, which will debate and amend the document before passing a final budget during the session that ends April 9.

“All of this in the next 90 days will be a work in progress,” the governor said last week. “We propose a budget, but there will be give and take.”

Mr. O’Malley has said his budget will include spending above last year’s $34 billion budget, including more money for new schools, roads and other projects in an effort to create jobs and drive private-business growth.

Last week, he revealed several specific proposals to be included in the budget, including $372 million for school construction, $22 million for state park improvements and $15 million for an affordable rental-housing initiative.

The governor has said the spending likely will require increases in taxes and other revenues. And he has hinted strongly that he will look to raise the state’s 23.5-cents-a-gallon gas tax, which has gone unchanged since 1992, as well the $30-a-year flush tax that pays for sewage treatment facilities.

A state commission recommended last fall that lawmakers double the flush tax to $60 this year and raise it to $90 next year.

Another commission recommended that the state tack 5 cents onto the gas tax in each of the next three years — bringing it to 38.5 cents a gallon by mid-2014 — to pay for road and transit improvements.

Both increases would require approval by the General Assembly.

“We probably have the most congested area in America,” House Speaker Michael E. Busch, Anne Arundel Democrat, said. “If there’s some kind of revenue increase to be considered, it’s going be the gas tax. But the county executives would have to support it.”

Tax increases alone are unlikely to balance the state budget or achieve leading lawmakers’ goal of trimming at least half of the state’s $1.1 billion structural deficit, which projects expected budget shortfalls in future years.

The governor and the Democrat-controlled assembly will also have to make some cuts to agencies and aid for local governments.

The most controversial option still on the table may be shifting responsibility for teacher pensions, which cost the state nearly $1 billion last year and continue to rise.

Maryland is one of just three states that pay teacher pension benefits without help from local governments, and its payouts have roughly tripled in the past decade as more educators have retired.

A state commission recommended last year that lawmakers phase in a 50-50 cost split between the state and its 23 counties and Baltimore, but local officials and teachers unions have objected strongly, arguing it will could force major cuts to local education.

Senate President Thomas V. Mike Miller Jr., Prince George’s Democrat, has led efforts to implement a cost share and has said such a plan likely has majority Senate approval but the House is still undecided.

Mr. O’Malley has long sided with counties on the issue but is now acknowledging that he is at least considering a potential shift.

He says a shift would likely have to come with some kind of agreement and assurance between the state and counties of new revenue.

“I still think it would be irresponsible to do that without a revenue source to support it,” he said. “Giving them the tab and telling them to find it out of their shared funds doesn’t seem to be a solution.”