Fiscal Staff Recommends Education Cutbacks

In the House Appropriation’s Education and Economic Development Subcommittee Hearing today, the Subcommittee reviewed the Department of Legislative Services analysis of the State’s aid to education.

One of the recommendations including holding back the phase-in of the net-taxable-income (NTI) adjustment, which was passed into law last year. The law required a change in the NTI calculation to more accurately capture late-filed tax returns.  The change, now in law, is to be phased in 20% each year over five years.  The law provides that jurisdictions that would be harmed by a change in the NTI calculation would be held harmless through a supplemental grant (effectively making the annual funding calculation the greater of that arising from the two calculations).

MACo supported this legislation which would shift the education aid calculation to look at the full scope of income, providing more equity in the formula and furthering the State’s and counties’ shared goal of providing educational opportunities to all Maryland’s schoolchildren. As described by the Department of Legislative Services, the NTI adjustment provided additional funding to 18 counties last year, and would provide more this year,

Approximately 75% of State aid to public schools is distributed inversely to local wealth, whereby the less affluent school systems receive relatively more State aid. The NTI is one component of calculating local wealth for purposes of State aid for education. Chapter 4 of 2013 provides additional education grants to counties whose formula aid funding amount is higher using NTI data from November 1 as compared to September 1. Chapter 4 phases in the grant amounts over five years, beginning in fiscal 2014. NTI education grants to 18 counties totaled $8.3 million in fiscal 2014, equal to 20% of the additional amount, and increase to $26.8 million (40% of the additional amount) in fiscal 2015.

The Department of Legislative Services, however, recommends changing the law this year to hold back the adjustment,

Due to changes in local wealth, the cost to provide 20% of the total amount increases to $13.4 million in fiscal 2015, and the additional 20% to be phased in in fiscal 2015 increased $7.7 million from last year’s estimate. Therefore, DLS recommends freezing the NTI grant calculation at 20% for one year and reducing the NTI grant amount by $13,429,992, contingent on the enactment of legislation authorizing the freeze. DLS will recommend an amendment to SB172/HB 162 (the BRFA of 2014) to freeze the NTI adjustment at 20% for one year, which delays the full phase in of the adjustment to fiscal 2019.

The following chart shows the difference between a 20% and 40% phase in.  The total cost of a 20% of the adjustment, paid in 2014 was $8.3 million statewide, while a 40% adjustment would cost the state $26.9 million, if all jurisdictions were held harmless as the law states.

NTI 2015Delegate John Bohanan, Chair of the Subcommittee, stated that this was a dramatic rate of increase for the State in FY 2015.    He also suggested an alternate way to reduce the cost of the NTI adjustment would be to remove the hold harmless provision.  If the hold harmless provision had not been in place last year, several counties would have lost funding.  For example, Montgomery County would have seen a $22.5 million cut.  If the held harmless provision is removed in 2015, Baltimore City, Baltimore County, Howard County, and Montgomery County might see their education aid negatively affected.

Secretary of Education Lillian Lowery, in response to Delegate Bohanan, stated that those jurisdictions that are held harmless by law are counting on that amount of aid from year-to year in their budgeting.

For more information, see our previous post on Conduit Street Senate Moving “Net Taxable Income” Revision To Funding Formulas and the Department of Legislative Services Analysis of Aid to Education.

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