Efforts Mount to Remove Disparity Grant Cap

Following through on one of their priorities for this session, Washington County legislators are pushing efforts to remove a cap that was placed on the disparity grant program during the 2009 session.  Removing this cap would allow eligible counties to receive increased funding through the program. As reported by the Hagerstown Herald Mail:

Sen. Christopher Shank, R-Washington, testified Wednesday at a Senate Budget and Taxation Committee hearing and asked for an amendment to the Budget Reconciliation and Financing Act of 2013 — a bill introduced by the state in the House and Senate dealing with tax and spending — so that Washington County and several other jurisdictions become eligible for the disparity grant money.

The disparity grant program provides noncategorical State aid to low-wealth jurisdictions to ensure that those who rely on local income taxes for substantial revenue, are able to generate sufficient yield to accommodate costly required spending on education, public safety, and other essential or mandated services. In fiscal 2010, a cap was placed on the program which holds funding at the fiscal 2010 level for eligible jurisdictions and precludes new jurisdictions from becoming eligible although they meet the specified grant criteria.

“One of the unintended consequences was that any county that did not qualify in 2010 for the disparity grant [when] there was a cap, forever forward you did not receive the disparity grant,” Shank said. “We are losing out in Washington County … the recession hit Washington County especially hard, our unemployment rate is one of the highest in the state.”

Delegate Andrew Serafini has also introduced a bill to remove the cap placed on the disparity grant program and phase in the additional funding over a five-year time frame.  An overview of this legislation, HB 914, can be found on Conduit Street.  MACo supported this legislation before the House Appropriations Committee on February 26.

For the second year in a row, the Department of Legislative Services (DLS) has recommended modifying the program to address the inequities in the program caused by the cap.  In this year’s analysis DLS offers three policy options for legislative consideration, each of which would require a statutory change either in stand-alone legislation, or as a part of a broader bill such as the Budget Reconciliation and Financing Act. DLS’s options are summarized in this recommendation:

Legislation is recommended to modify the Disparity Grant program to either (1) permit jurisdictions that are eligible for disparity grants to receive a minimum of 40% of the formula; (2) to phase out the cap over five years but limit grants to the ratio of each eligible jurisdiction’s local income tax rate to the statewide 3.2% maximum; or (3) to provide a flat grant that could be increased periodically based on the health of the State’s general fund. Under any scenario, it is recommended that the minimum local income tax rate required to receive disparity grants be increased from 2.4 to 2.6%.