ANNAPOLIS, Md. — Gov. Larry Hogan (R) addresses the crowd gathered during his second inaugurationon Jan. 16. (Katherine Frey/The Washington Post)

Gov. Larry Hogan (R) on Thursday unveiled a budget proposal that includes a pay raise for all state workers, an increase in the state’s fiscal reserves, and tax relief for Maryland residents who “deserve it the most,” companies that locate in the state’s most depressed communities and those that provide parental leave to employees.

Hogan provided an outline of his fiscal 2020 budget plan to reporters on Thursday. He will formally present the plan to legislative leaders Friday.

“This is just the first step in the process,” Hogan said. “The legislature will then have the next 75 days to review it, debate it, make revisions to it and then it will be up to them to pass the final budget.”

The $46.6 billion budget proposal — a 4 percent increase over last year’s fiscal plan — raises the pay of state employees by at least 3 percent, extends a tax relief to the retired military, police officers and fire and rescue workers, provides $57 million for businesses that locate in “opportunity zones,” and sets aside $1.3 billion in reserves to guard against a potential economic downturn.

The governor wants $248 million for drug treatment and prevention, a 20 percent increase; $10 million in capital grants for school safety improvements at public schools and $3.5 million at private schools; and $221 million for the Purple Line.

Hogan said the budget also fully funds education with $6.9 billion, which he said is a $347 million increase over last year’s appropriation. He plans to set aside $200 million for recommendations from the Kirwan Commission, an education panel that has been advising the legislature on ways to change the public school system.

The commission is counting on the $200 million, but it has also suggested that another $125 million in tax revenue from Maryland casinos be set aside to pay for its policy recommendations, including an increase in teacher pay and expanding prekindergarten.

Maryland voters last year approved a “lockbox” guaranteeing that casino revenue go to education. Hogan angered legislative leaders and the teachers union last month by saying he wants to direct a large chunk of the money to school construction.

“The question for us is how much of the $125 million from the lockbox is used for school construction rather than implementing the first year of Kirwan,” said Steven Hershkowitz, a spokesman for the Maryland State Educators Association. He declined to comment further until the governor’s spending proposal is formally presented.

The governor warned the Democratic-controlled legislature against “unsustainable spending.”

“We must remain vigilant about maintaining savings in order to be better prepared for those times when more flexibility is needed, while also making necessary, targeted one-time investments,” he said.

Asked about the impact the protracted federal government shutdown could have on the budget, the governor said he is continuing to monitor the situation. Comptroller Peter Franchot (D) released revenue estimates this week showing that the state has had $57.5 million less in income tax revenue since the shutdown began.

“It is certainly something we are talking to the comptroller about and keeping an eye on, but we do have all of these reserves, ” Hogan said.

The governor said his decision to provide at least a 3 percent increase in pay to state employees was made despite ongoing bitter negotiations with American Federation of State, County and Municipal Employees Council 3, a union that represents more than 20,000 state workers.

“AFSCME refused to even come to the table, choosing instead to simply play divisive political games at the expense of hard-working Maryland state employees,” Hogan said, announcing that he is suing union leaders for unfair labor practices.

“That’s funny,” AFSCME President Patrick Moran said in reaction to Hogan’s announcement. “What he failed to mention is that we filed an unfair labor practices lawsuit against him already.”

Union officials filed their complaint in mid-October, after the governor’s office imposed conditions on the bargaining that they deemed “unacceptable.”

Under the proposed budget, some state employees will see more than a 3 percent increase. For example, state troopers received a 5 percent increase.

The governor’s proposal also includes funding for several previously announced initiatives, including an expansion of the College Promise program, a plan to allow Marylanders to deduct 100 percent of the interest paid on their student loans and $300,000 in funding for three P-Tech schools, where high school students can earn both a diploma and an associate degree.

The governor said he will continue to try to lower taxes for retirees, including exempting 100 percent of retirement income from state taxes — a promise made on the campaign trail. He said he hoped to see the legislature approve sports betting, which would create a new revenue stream.

“Well, we kind of missed the boat last time,” Hogan said. “I think it should’ve happened in the last session . . . The odds are good that we are going to have sports betting. Something’s going to happen in the next 83 days.”