O’Malley budget to include tax increases, pension shift

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ANNAPOLIS — Gov. Martin O'Malley will propose a budget Wednesday that calls for the state and counties to evenly split about $1 billion in teacher pension costs, much to the dismay of county officials who say the move will exacerbate their budget problems.

The governor told county officials during a tense meeting Tuesday night that he will call for an immediate 50-50 split, said Howard County Executive Kenneth S. Ulman, a Democrat.

Maryland is one of just three states that pay the entirety of teacher pension benefits without help from counties. Its annual payouts have skyrocketed in the past decade, to nearly $1 billion.

Officials from the state’s 23 counties and Baltimore have long resisted cost sharing on grounds it could worsen local shortfalls and force severe cuts.

“It’s a difficult pill to swallow, and I’m not swallowing it,” said Montgomery County Executive Isiah “Ike” Leggett, a Democrat, who called the proposed pension shift “a nonstarter.”

Mr. O'Malley, a Democrat, has sided with counties on the issue during his five years as governor. But this year, he began considering pushing some costs onto counties to help the state out of its $1.1-billion structural deficit.

A state commission recommended last year that the state gradually phase in a 50-50 cost split.

Mr. Ulman said the governor’s proposal would attempt to mitigate the effect on counties by splitting the cost of Social Security between the state and counties.

Counties formerly paid Social Security benefits without state help.

In all, the restructuring would force counties to pay an extra $240 million next year, Mr. Ulman said.

“We’re not in any better position to afford it than the state is,” he said. “That said, I give the governor a lot of credit for taking into consideration the impact.”

The governor’s plan would also attempt to generate extra tax revenue for the state and counties by closing some tax loopholes and eliminating personal exemptions for the state’s highest earners.

Senate President Thomas V. Mike Miller Jr., Prince George’s Democrat, confirmed earlier Tuesday that Mr. O'Malley’s proposed operating budget will include pension cost sharing and an increase in the state’s $30-a-year “flush tax.”

A commission has recommended that state officials double the flush tax this year to $60 and increase it to $90 next year.

The governor will introduce his capital budget later this month, which is expected to include an increase in the state’s 23.5-cents-a-gallon gas tax.

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