Senate Committee Recommends Reform of Disparity Grant Program

During budget discussions yesterday, the Senate Budget and Taxation Committee approved language which would remove the cap placed on the disparity grant program to address the program’s inequities. As previously reported on Conduit Street, 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.

In its budget analysis, the Department of Legislative Services recommended three options to address the program inequities.

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%.

As reported by the Hagerstown Herald-Mail:

The Senate Budget and Taxation Committee adopted a formula based on the local piggyback income tax rate of counties, which could give Washington County a share of the wealth-based grant called the Disparity Grant.

Removing this cap is a priority of the Washington County Delegation.