By Andrew Welsh-Huggins
The Associated Press

COLUMBUS - Ohioans would pay higher taxes, schools would see a modest funding increase and universities could face continued tough times under a compromise state budget approved Thursday.

Almost 37 percent of the record $48.8 billion spending plan - or about $18.1 billion - is spent on social services for poor Ohioans. That Medicaid spending is itself a record.

The GOP-controlled committee debating the budget approved the proposal 4-2 Thursday morning along party lines after a meeting that finally got under way about 2 a.m. The full House and Senate were expected to approve the bill late Thursday.

Gov. Bob Taft, who can veto individual items, is going through the budget line by line, said spokesman Orest Holubec. Taft must sign the budget by July 1, the first day of fiscal year 2004.

Lawmakers and the administration want retailers to have enough time to prepare for a proposed penny increase in the state sales tax that would take effect July 1.

"You're going to see a lot of dollars spent on great ads, 'Beat the sales tax increase, come in now,' " predicted Gary Adams, president of the Greater Cleveland Automobile Dealers Association. He said he doubted the increase would hurt sales over the long run.

Rep. Chuck Calvert of Medina, Republican chairman of the committee, said the spending plan struck the appropriate balance between cuts and higher taxes.

But Rep. Ed Jerse, a Democrat from Euclid, said the plan burdens middle-class Ohioans too much while not raising enough money from businesses.

The plan raises an additional $2.9 billion in taxes over two years, almost all of it from the sales tax increase. The increase raises Ohio's average sales tax from 6 percent to 7 percent.

Ohioans will also start to pay the sales tax on previously untaxed services, such as renting a storage locker, towing a car and having clothes dry-cleaned.

Satellite TV subscriptions will also be taxed for the first time. That provision raises more than $40 million over two years.

The plan also ends an exemption for businesses buying toll-free telephone services. Large call centers employing more than 50 people won't be affected.

The plan spends $7.15 billion on schools next year, an increase of about 2.3 percent. The Department of Education said the figure, less than what the governor requested, could force districts to turn to voters for more money.

"Money matters, particularly when you look at the increased demands of the federal and state governments on public education," said department spokesman J.C. Benton. "Money has to be there to meet those demands."

The proposal increases the basic aid the state guarantees schools for each student from $4,949 to $5,058, less than the Senate version of the budget, which spent $5,088.

The budget cut Taft's proposal for OhioReads in half, from $28.5 million to $12.9 million.

Public colleges and universities, which lost hundreds of millions of dollars in spending cuts earlier this year, received an increase of less than 1 percent in the budget year beginning July 1 and less than 2 percent next year.

Meanwhile, the system expects to add about 16,000 students for a 4.5 percent enrollment growth, said Jamie Abel, spokesman for the Ohio Board of Regents.

Some of the $2.9 billion in new taxes in the state's proposed two-year, $48.8 billion budget:

• Increase the minimum tax that must be paid by businesses from $50 to $1,000. Applies to companies with $5 million in sales or 300 employees. Raises $3.9 million.

• Phase out the reimbursement the state pays local communities for a tax exemption companies enjoy on the first $10,000 of the value of equipment they own. Raises: $20.4 million.

• Temporarily increase the state sales tax by 1 percentage point. Raises $2.53 billion.

• Extend sales tax to previously untaxed services, such as storage facilities, selected personal care services including tanning and manicures, satellite TV, dry cleaning, delivery charges, taxis and vehicle towing. Raises $133 million.

• Eliminate sales-tax loopholes created for specific businesses. Raises $95.9 million.