State Briefing: Bleak Forecast For Local Aid and Revenues

The Spending Affordability Committee meets each year to set a target for State spending in the upcoming fiscal year’s budget to ensure that the rate of growth in spending does not exceed the rate of growth of the State’s economy. Typically, the first meeting of the Committee includes members of the fiscal committees of the General Assembly and the briefing examines, among other things, State Aid to local governments, changes in local tax rates, and local salary actions.   This year, the briefing document also included information on local government revenues.  Together, this information presents a pretty bleak budget picture.

State Aid to Local Governments

Page 20 of the briefing document begins examining State Aid to Local Governments.  Based upon baseline projections prepared by the Department of Legislative Services, local governments will see a “bump” in aid in FY 2013.  However, what is more interesting, is what has occurred from FY 2008 to FY 2013, and what the “bump” consists of. 

As to be expected, funding for education increased during that time frame, however, direct aid to county/municipal governments was cut by $458.5 million and funding for local health departments was cut by $28.3 million.  Although projections show an increase in local aid for FY 2013, the largest growth in terms of dollars will occur in education.  Funding for county/municipal governments will see an increase due to impact aid for video lottery terminals, a baseline assumption that police aid will be restored, and Highway User Revenues (HUR).  Note, however, that the increase in HUR is not from a policy change to restore these funds (diverted from local governments each of the last three years), but is simply reflecting a modest transportation revenue increase.  In addition, funding from video lottery terminals goes to a small number of specified jurisdictions to address needs created by the location of these facilities.

Although health departments see a slight increase in funding, they have been severely affected by prior year budget decisions.  Not only was their funding cut, but a new interpretation of the intentions of the MACo-supported law to create their funding formula has left them without any means to return to prior funding levels.  Therefore, under the current interpretation, health departments will never see their formula go much beyond the base level of funding $38.7 million.

Local Revenue Picture

The revenue picture does not look much better.  While the briefing document shows 2% growth (lower than the State’s projected revenue growth) in local government revenues, growth in local government’s largest revenue source, the property tax, is stagnant.  Property tax revenue only grew by .7% from FY 2011 to FY 2012.  If state property tax revenue projections give any indication as to what will occur at the local level, local property tax revenues will continue to decline.   State property tax revenues are estimated to decline at a rate of -3.3% in FY 2013 and -3.5% in FY 2014, experience 0% growth in FY 2015 and FY 2016, and remain flat at 2.5% growth from FY 2017 to FY 2021. This suggests that local governments have a number of difficult years ahead of them.  While income taxes and recordation/transfer taxes are estimated to increase slightly, it will not be enough to offset loses in local property tax revenues.

MACo hopes that State policy makers keep this revenue picture in mind as they make budgetary decisions affecting county governments over the next few months and during the upcoming legislative session.

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