As previously reported on Conduit Street, 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. This year, local tax rates and salary actions were discussed in the second meeting along with information on local government revenues. Similarly to last year, this information continues to present a bleak budget picture for our local governments.

State Aid to Local Governments

Page 18 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 an increase in aid in FY 2014 of $257.3 million. However, it is important to note what has occurred from FY 2008 to FY 2014, and what constitutes this increase:

In the Fiscal 2014 baseline, total State aid is over $6.9 billion, or 40% of the State’s general fund. However, funding for public schools makes up 87% of that aid, while the county/municipal category is 7.5%. In addition, when comparing Fiscal 2008 to 2014, funding for education has grown by 12.1%, while funding for the county/municipal category has dropped by 43.7%.

As to be expected, public schools are projected to receive the largest portion of the increase in Fiscal 2014, $167 million. Funding for county/municipal governments will see an increase of $53.1 million due to the following contributing factors: impact aid for video lottery terminals; baseline assumptions that police aid and inflationary increases to local health departments (both a part of the teachers’ pension offsets) will be restored; Program Open Space; 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 four 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 locations of these facilities.

Local Revenue

The briefing document shows revenue growth for local governments to be lower than the State’s projected revenue growth. This is due in part to the stagnant status of local government’s largest revenue source: the property tax. Property tax revenue is estimated to grow by .1% from Fiscal 2012 to Fiscal 2013 – resulting in a drop from the prior year estimated growth of .7%. State property tax revenues are estimated to decline at a rate of -0.3% in Fiscal 2014 and -0.8% in Fiscal 2015. They are also expected to experience 1.1% growth in Fiscal 2016; 1% growth in Fiscal 2016; and remain flat at 2.5% growth from Fiscal 2018 to Fiscal 2022. These expectations suggest that local governments have a number of difficult years ahead.

While income taxes are estimated to increase, recordation/transfer taxes are estimated to be fairly flat. It is doubtful that this revenue will be enough to offset losses 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 couple months and during the upcoming legislative session.