As is often the case, the BRFA bill is complex and expansive. This year’s 23-section bill is 48 pages in length, and following expected changes by both the Senate and the House (in that order, as by tradition the Senate is expected to move the budget first this year in an alternating pattern) it may well expand to twice that length. Much of the legislative consideration on the BRFA begins and ends with a practical understanding that its passage is a necessary part of enacting a constitutionally-required balanced budget.

The BRFA, unlike the budget bill itself, is not restrained in its breadth or effect. The bill may make changes to funding requirements, in some cases ones that have profound long-term effects. Just last year, the BRFA was the vehicle for the Administration’s proposal to reform state and teacher pension benefit and contribution structures, and the shift of 90% of the costs of property valuation to county governments.  This year, the BRFA includes the Administration’s proposal to shift a portion of teacher pension costs to counties and change income tax deductions and exemptions for higher income earners to raise revenue to offset some of the teacher costs on counties and close the State’s structural deficit.

Small Section – Big Impacts

Amidst this 48-page bill, and its plethora of provisions resides one section with the potential for tremendous future effect. With much of any year’s budget debate focusing primarily on that year’s balance, permanent or long-term effects tend to receive less attention. However, Section 15 of SB 152, located on page 46 of 48 of the bill, is worthy of its own attention.

SECTION 15. AND BE IT FURTHER ENACTED, That, notwithstanding any other provision of law, for fiscal year 2013 through fiscal year 2017:

(a) Except as provided in subsection (b) of this section and except as otherwise provided in this Act, the Governor is not required to include an appropriation in the budget for any program or item in an amount that exceeds the fiscal year 2012 appropriation for that item or program as approved in the State budget for fiscal year 2012 as enacted by the General Assembly.

(b) Subsection (a) of this section does not apply to:

(1) funding required for State aid to public elementary and secondary education as provided under Title 5, Subtitle 2 or § 4–121, § 4–122, § 36 6–306, § 8–310.3, § 8–317, or § 8–415 of the Education Article;

(2) the State’s employer contribution to the State Retirement and Pension System required under § 21–308 of the State Personnel and Pensions Article; or

(3) any appropriation required to the Revenue Stabilization Account of  the State Reserve Fund under § 7–311 of the State Finance and Procurement Article.

So – plain English, this section says that other than a few specially protected set-asides (primarily education and pension funding, plus the state’s own “Rainy Day Fund”) no funding formula or other required appropriation has any effect for the next five years. “Flatline funding” is the new law.

Local Government Effect

For local governments, should this section take effect, it means that all of the reductions that have been made to local health departments, local jails, police aid, and local roadways, cumulatively totaling approximately $1.8 billion, will remain in effect for the next five years without any action necessary by the General Assembly.

• Local Health Departments will remain at the newly reduced floor of $37 million, down from almost $70 million a few years ago
• Police Aid was cut $2o million in FY 2010, and the reduction was carried through to FY 2012, this provision will continue the reduction for another 5 years
• Local Jail Reimbursements were reduced by approximately $40 million in FY 2010 and the program was changed to a grant program with limited funding – this provision will essentially zero out this funding for the next five years
• Local roads funding has been cut to about 3% of prior levels – this section would suspend even the additional revenues from the motor fuel tax and titling tax that local governments would share in as part of Highway User Revenues making the FY 2012 appropriation the funding level for the next 5 years

Any number of other areas of the budget have sought and received the “certainty” of a formula or other statutory guide to each year’s appropriation — and their effect would essentially be suspended for the foreseeable future. Overall, since Section 15 sets the new funding “floor” based on the final enacted appropriation for FY 2012, any such entity that faces a one-year budget cut for FY 2012 (a fairly common event in Maryland state budgets) would essentially see those cuts be carried over for five years.

This small section may have some of the deepest and longest-lasting impacts of any fiscal policies contemplated in Annapolis this session.

“In recent years, the Transportation Trust Fund has been depleted,” Garagiola, D-Montgomery, said in an e-mail. “This legislation proposes a constitutional amendment to create a firewall for current and future Transportation Trust Fund monies. It is critical that we act now to address our infrastructure needs.”

“Maryland needs to begin the process of restoring this vital funding to our counties and municipalities,” Garagiola said. “Marylanders do not distinguish importance between state and local roads.  At a time when our local governments are also struggling to balance their budgets, we have taken essential funding from their own equally critical transportation projects.”

Historically, county and municipal governments got 30% of the Transportation Trust Fund revenues. The percentage shrunk to 10% over the last two years due to transfers to the general fund. The proposal keeps local governments’ share at 10% in FY2013 but increases it to 25% by FY2016.

The additional filings distribution, a reconciling distribution accounting for all tax year 2010 returns posted between November 4 and December 31, 2011, is $42.3 million, a 20% decline from last year.

As with all distributions dealing with small numbers of returns, this distribution can be volatile.  In fact, the number of returns covered by this distribution declined almost 30% even though for the full tax year the number of returns increased 1.4%.

This distribution is the last tax year 2010 distribution; any remaining revenue from tax year 2010 activity will be distributed through the delinquent distributions and, ultimately, the unallocated distribution
for tax year 2010.

Total local income tax liability increased 5.8% in 2010, the first growth in three years following a 2.8% decline in 2009 and a steep 8.4% decline in 2008 (Table 4).  Growth in personal income recovered from a 1.6% drop in 2009–the first ever–to 3.9% in 2010.  And unlike 2008 and 2009, which experienced capital gains declines of 63% and 36%, 2010 saw capital gains increase an estimated 50%, albeit from a much reduced base.

The Interest and penalty distribution increased by $21.4 million, an increase of 23% over 2011.

The growth is spurred in part by the recently-enacted requirement that outstanding tax liabilities be
addressed, whether through full payments or payment plans, before driver’s licenses and motor vehicle registrations may be renewed.

If you have any questions about the January 31 distribution, please contact Judith Oberist of the Revenue Administration Division at (410)260-7606.

During Session, Buddy Alerts are sent via email when a vote on a specific bill is crucial. The alert will provide a brief overview of the legislation, MACo’s position, and a some quick talking points.  MACo encourages elected officials to sign up to participate in this effort by selecting  Delegate(s)/Senator(s) from the lists below. Prior to selecting your “buddies” take into consideration those with whom you have the best rapport and feel most comfortable conveying a position on a bill.

Please send buddy requests to Emily Hollis at ehollis@mdcounties.org.

2012 Maryland State Senators

2012 Maryland State Delegates

“Through the opening of this pilot site, we take another step forward to making and keeping all Howard County residents self sufficient,” said County Executive Ulman. “Working families who might otherwise pay hundreds of dollars for tax preparation and electronic filing can now use those funds to pay bills, weatherize their homes or save for their futures.”

For more information on the program visit: www.howardcountymd.gov/VITA.htm.

Also, when using Twitter, a hashtag (#) in front of a word allows tweets involving the hashtag code to be tracked in one cohesive thread.  So, if you’re looking for county government news, you can go to www.Twitter.com, search  #mdcountynews and see what everyone is saying! You can also search this hashtag code to get answers and updates from MACo staff.

MACo Affiliates can now access bills through this system. From the Legislative Overview Page, just click on the policy area of interest for a list of bills directly impacting the affiliate.

MACo Legislative Tracking Database

Revenue Estimates and Income Tax Formula Distribution

Mr. Roose provided  revenue estimates for FY 2012 and 2013 as of December 2011.  The State’s General Fund is expected to grow by 3.8% in FY 2012, dropping to 2.6% in FY 2013.  He said that the State will continue along at a low growth rate for the next few years.

Mr. Roose also provided information on employment growth and individual income tax revenue.  This prompted discussion on the income tax distribution formula and why the distribution was larger than usual in November 2011.

The percentages used in the formula are reset every year for the November distribution. This is done by seeing what the actual amount collected of the  total was,  based on the previous year’s tax liability using actual  returns received by November. This process works well when there is little change in the percentages used from year to year. However, the last few years have been very volatile and the formula percentages have changed quite a bit.  These formula changes have created an overstating of revenues which could result in a dramatic reduction in the summer of 2012 and a resetting of the formula a year from now that could cause revenue shortfalls if counties are not careful.

It is important to realize that this increase in income tax revenues and the resulting surplus it will generate is not an economically driven surplus, but rather a formula driven surplus. If counties were to use the revenue collected in FY 2012 as a base and project increases above that level for FY 2013, they we could find themselves with a severe revenue shortfall in FY 2013 and 2014.

Assessable Base Estimates

Mr. Young provided a series of tables showing the estimated taxable assessable base at the county level for FY 2012 through 2014.  The estimated real property assessable base drops from FY 2012 to 2013, but then stabilizes in FY 2014.  This same trend occurs at the State level.

Mr. Young also provided information on recent assessment notices .  As previously posted on Conduit Street, the grouping of residential properties recently assessed, declined in value by 17%.

Lastly, Mr. Young discussed outreach efforts to ensure homeowners complete the Homestead Tax Credit application prior to the December 31, 2012 deadline.

Over the past three years, residential property values in this group have experienced a decline in value with 91% of them decreasing. On average, the residential values in this group being reassessed decreased by 17%.

This is the third year in a row residential property values have declined.  The group of homes that were assessed in 2010 dropped an average of 22% in value, and those assessed in 2009 dropped by 20%.

A previous blog posts points out that growth in property tax revenues is pretty much stagnet and that State property tax revenues are projected to decline for the next years and then remain flat.  All of this indicates that counties have a few more tough years ahead.  Counties are already projecting to bring in less property tax revenue in FY 2012 than they did in FY 2011.