Income tax distributions provide new shock to county budgets

While county budgets are already reeling from property reassessments, deep state cuts (both current and proposed) and service demands, tomorrow’s announced distribution of county income taxes will compound these fiscal frustrations. From the Office of the Comptroller’s “local distribution memo” to county finance officers. According to the Office of the Comptroller, the January 2010 distribution of county income taxes is down 52% compared to that from January of 2009.

Maryland’s county income tax, unlike most local taxes, is collected by the State as part of the Maryland return. As a result, counties do not have an independent ability to monitor ongoing collections — they are substantially beholden to the State for estimates and actual distributions as the year goes on. The disappointing January distributions may cause continued readjustment to county budget projections for an alreadt stressed fiscal year.

The decline, to a large extent, is the result of an overdistribution of county income taxes made for tax year 2008. Many counties suffered a sharp decline in income taxes, relative to their own projections, in the November distribution. Because the effect of the past-year error was so great, some counties saw their entire November distribution eclipsed as a reconciliation, and that carried into the January distribution as well. Four counties remain in an overdistributed position even after these two latest scheduled distributions — a situation without recent precedent.

Michael Sanderson

Executive Director Maryland Association of Counties

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