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Senate approves budget package; House ready for debate

ANNAPOLIS — The House of Delegates gave preliminary approval Tuesday to a budget package that raises taxes and shifts the cost of teacher pensions to local jurisdictions, setting up a final vote Wednesday morning.

The largest component of the tax bill is an income tax rate hike on individuals earning more than $100,000 and couples earning a combined $150,000 or more. The pension bill also makes other cuts to state spending.

Republican lawmakers offered more than a dozen amendments between the two bills, most of which had been offered during the regular legislative session’s budget debate. All of the proposed changes were easily defeated on the floor.

House Speaker Michael E. Busch, D-Anne Arundel, said the chamber would seek final approval of the fiscal year 2013 budget package Wednesday morning at 10 a.m.

“I believe that all the questions the delegates had concerning the revenue package and budget reconciliation act have been answered,” Busch said. “I believe there will be majority votes on all three bills tomorrow.”

House Minority Leader Anthony J. O’Donnell, R-Calvert and St. Mary’s, decried what he called the “endless downward spiral of growing government,” saying that the budget grows by $700 million through funding of government programs while taking money out of business owners’ wallets.

“How about the private sector, how about free markets?” O’Donnell asked rhetorically.

The Senate gave final approval Tuesday morning to both halves of the budget package, setting up the House motion. If the House gives the package final approval Wednesday morning without making changes to either bill, all the Senate will have to do is adjourn Wednesday when it convenes at 12:30 p.m.

The tax bill, SB 1302, raises the income tax rate based on the adjusted gross income of Maryland residents. The rate increase is between one-quarter and one-half of a percentage point, depending on the filer’s tax bracket.

The bill also limits some personal tax exemptions, applies the recordation tax to indemnity mortgages and repeals the corporate income tax credit for state and local property taxes paid on certain telecommunications property.

State business advocacy groups have said the tax bill would negatively affect the business community, especially those who are small business owners who could be forced to reduce their business expenses if they have less personal income to invest in their companies.

The tax legislation is forecast to generate more than $261 million in revenue for the state, with about $195 million coming directly from the tax hike.

Republican amendments included measures that would remove the tax hike and cover that loss of revenue through a $204 million balance in the state’s general fund, but Democrats were uncomfortable with depleting the fund, which would likely lead to the state’s losing its Triple A bond rating.

The indemnity mortgage measure also drew the ire of Republican lawmakers in both chambers, who said such mortgages are a “tool for small businesses” trying to expand. An indemnity mortgage is when a lender agrees to loan money to a borrower if a third party guarantees repayment of the loan and then executes a mortgage on real property.

Democrats called indemnity mortgages a tax loophole through which borrowers could establish a limited liability company and avoid paying the recordation tax, which is a fee charged to record a mortgage or deed.

The pension bill, SB 1301, shifts teacher pensions and makes other cuts to Gov. Martin O’Malley’s original fiscal 2013 budget, including about $80 million in reductions to Medicaid. The bill would save the state more than $227 million.

Democrats hailed the agreement as a “balanced” budget containing both cuts and tax increases. But a chorus of Republican lawmakers has criticized the budget for growing by $700 million over fiscal year 2012 and has called the tax hike unfriendly toward business.

The Senate also passed SB 1303, which corrects a constitutional issue with SB 153, which was passed during the regular session. The bill authorizes $15.3 million in Qualified Zone Academy Bonds to be used for school construction and renovation. Technically, that bill should not have been passed until after passage of the operating budget. The House gave preliminary approval to the bill and should pass it Wednesday.