Fiscal Staff Recommends Disparity Grant Overhaul

In the budget analysis, Payments to Civil Divisions of the State, the Department of Legislative Services (DLS) discusses the consequences of placing a cap on the Disparity Grant program during the 2009 session, the funding proposal in the Governor’s FY 2013 budget, and their recommendation to reallocate the proposed  funding to permit newly eligible jurisdictions and revise the cap to the FY 2013 level to provide ongoing assistance to offset teacher pension costs.

From the DLS budget analysis;

A cap on the Disparity Grant program was adopted through Chapter 487 of 2009 (the Budget Reconciliation and Financing Act of 2009), to limit the amount received by each county to the level of funding provided in fiscal 2010. The change was drafted in this manner to maintain the functionality of the formula calculation for determining each jurisdiction’s per capita income tax in relation to 75% of the statewide average. However, this method of calculation has two unanticipated consequences that the legislature may wish to consider addressing.

  • Exclusion of Newly Eligible Counties: The statute limits grant funding in fiscal 2011 and beyond to no higher than the amount received in fiscal 2010. For practical purposes, any jurisdiction that received $0 dollars in the 2010 grant cannot receive any funding in any future year if its income tax disparity falls below 75%, making it eligible for the program. As a result three jurisdictions were excluded from receiving $7.7 million in fiscal 2013; and
  • Limiting Grant Funding within Individual Jurisdictions: With limited economic recovery in the wealthier jurisdictions the tax year 2010 data resulted in a widening in the disparity between disparity grant eligible counties and 75% of the statewide average. Thus, the 8 currently eligible jurisdictions receive funding at the fiscal 2010 cap level; an amount $19.0 million lower than would be received in the absence of a cap.

Funding for FY 2013 totals $139.5 million, this includes $119.9 through the formula grant, a statutorily mandated grant of $3.1 million to Baltimore City, and $16.5 million through a one-time supplemental grant allocated to the eight jurisdictions that are currently eligible to receive disparity grants – Allegany, Caroline, Dorchester, Garrett, Prince George’s, Somerset, and Wicomico counties, and Baltimore City.  The supplemental grant is being proposed as an “offset” to the teacher pension shift.

However, according to the DLS analysis

If the legislature modifies any of the components of the Governor’s proposal, it renders the allocation of the supplemental grant moot. This offers the legislature the opportunity to allocate the supplemental grant as part of a larger action to address the concerns noted above, in conjunction with budget reconciliation legislation, and to provide the less wealthy jurisdictions with additional ongoing support to mitigate the effects of assuming a portion of teacher retirement costs.

Therefore, DLS has recommended the following:

The Department of Legislative Services recommends consideration of contingent budget bill language to reallocate the supplementary grant along with statutory changes to permit newly eligible jurisdictions to receive funding, and revise the cap to the fiscal 2013 level on an ongoing basis to assist in teacher retirement costs. As counties’ share of pension costs continue to increase, consideration should be given to completely removing the caps upon complete resolution of the State’s structural budget gap.

The analysis also includes a chart showing the proposed reallocation of the funding.

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