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Only taxes, cuts to be discussed in special session

ANNAPOLIS — The General Assembly is set to consider a so-called “bare bones” budget compromise Monday that reinstates cuts enacted by the “doomsday” budget but does not tie in any ancillary measures, like a gas tax increase or gambling expansion.

Sen. Richard S. Madaleno Jr., D-Montgomery, said two bills are likely to be introduced on the first day of the special legislative session — and they’ll be simple.

“Just revenues and budget cuts,” said Madaleno, a member of the budget conference committee.

Some $500 million in spending cuts to education, programs and services would go into effect July 1 if the assembly does not increase state revenues. Leadership intends to do so by raising income taxes on the wealthiest Marylanders and shifting the cost of teacher pensions to local jurisdictions over a four-year period.

Gov. Martin O’Malley said he will introduce the legislation on Monday.

The agreement would reinstate the state’s biotechnology tax credit — which Sen. Nathaniel J. McFadden, D-Baltimore, said was important to bringing jobs into the state — and would save 500 state positions. Of those 500 positions, 400 are filled, he said.

Assembly leadership has also agreed to $109 million in reductions to O’Malley’s original fiscal 2013 budget proposal, $80 million of which comes from a surplus of Medicaid funds. Lawmakers could not say where the remaining $29 million in cuts would come from.

The budget, totaling about $35.5 billion, grows 2.6 percent from the fiscal 2012 budget. O’Malley said that the budget’s growth rate was the third lowest in two decades.

The budget enacted by the assembly when the tax hike and pension shift bills did not reach final approval on April 9 was slightly smaller — about $35.4 billion. But House Speaker Michael E. Busch, D-Anne Arundel, said the cuts to education spending triggered by the full budget package’s failure were not acceptable.

“I think it’s very important for us to come back,” Busch said. “I don’t think that we can let those inactions go unaddressed.”

O’Malley, reiterating a frequent refrain, said finishing the budget was necessary to move the state forward.

“To leave this budget incomplete, to leave this budget as it stands now, would damage the very forward motion that all of us together work so hard to achieve for our state,” O’Malley said. “A cuts-only approach would help no one and would harm all of us.”

That means raising taxes is necessary, O’Malley said.

The income tax increase is similar to the proposal put together by a conference committee of legislators on the last evening of the regular session. Individuals earning more than $100,000 a year and joint filers making over $150,000 will see their tax rate go up by one-quarter of a percent.

The top 16 percent of earners in Maryland will see their tax rate increase, amounting to an additional $247 million in state revenue, O’Malley said. That measure, along with a four-year phase-in of the teacher pension shift, has been agreed upon.

“We have a settled agreement in place,” said O’Malley, flanked by Busch and Senate President Thomas V. Mike Miller Jr., D-Calvert and Prince George’s, on Wednesday morning.

“The three of us are in harmony,” Miller added later. Both Busch and Miller said they would have the votes they need to gain approval for the measures in their chambers.

Notably missing from the special session will be any legislation proposing a gambling expansion or a mechanism to increase transportation funding, the latter of which O’Malley bemoaned.

A suggestion to apply the state’s sales tax to gasoline purchases fell flat during the regular session, but O’Malley wants the special session “focused entirely on concluding our annual budget.”

That decision left a bad taste in the mouth of Donald C. Fry, president and CEO of the Greater Baltimore Committee and a former state legislator.

“We’re still bothered that the state hasn’t made any progress on investing in our transportation infrastructure,” Fry said. “It’s frustrating to watch our lawmakers rush to address operating budget issues, yet ignore our state’s most pressing capital challenge that impacts our economy — funding transportation infrastructure.

“With transportation funding, there’s a direct relationship between improving infrastructure, job creation and the private-sector growth that ultimately drives government revenue without tax increases. Mobility is a key to economic growth, but clearly it has not risen to the top of mind in Annapolis.”

The “doomsday” budget enacted by the legislature at adjournment of the regular session on April 9 cut $512 million from education and popular state programs and services. It also is out of balance by $71 million. Maryland’s constitution requires the budget be balanced.

The agreement reached between leaders would leave the general fund balance at $204 million. Together with the state’s Rainy Day Fund, Maryland will have $928 million in reserves, which O’Malley said would protect the state’s Triple A bond rating.

The special session should last three days, costing taxpayers about $20,000 each day.