Governor’s 2021 Budget Proposal – What It Means for Counties

Governor Larry Hogan yesterday unveiled his FY 2021 budget proposal. Overall, the $47.9 billion budget proposal — a 1.6 percent increase from the current fiscal year —  leaves a general fund balance of $414.4 million at the end of FY 2020 and $108.5 million at the end of FY 2021.

The Rainy Day Fund ends FY 2021 with a balance of $1.2 billion (6.28% of general fund revenues). Combined cash balances at the close of FY 2021 of $1.3 billion equal 6.8% of general fund revenues.

The Spending Affordability Committee (SAC) set a goal of eliminating the structural deficit forecast for FY 2021. The Administration’s budget reduces but fails to eliminate the structural gap for FY 2021, leaving a structural deficit of about $37 million.

The Governor’s proposed budget increases aid to local governments by $291.8 million over FY 2020, most of which is in the form of education, aid, which increases by $212.9 million.

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SDAT Cost Shift

The Governor’s Budget Reconciliation and Financing Act (BRFA) (HB 152) revives an attempt (unsuccessful in previous years) to shift costs of the State Department of Assessments and Taxation (SDAT) onto county governments.

HB 152 proposes increasing counties’ reimbursement of SDAT functions, including costs of real property valuation, business personal property valuation, and information technology. Since 2013, counties have reimbursed the state for 50 percent of the costs for these functions, but the BRFA proposes increasing this share to 60 percent, permanently.

Conduit Street Coverage: It’s Back! Governor Revives SDAT Cost Shift To Counties

Disparity Grant Funding

The Disparity Grant Program provides noncategorical State aid to low-wealth jurisdictions for county government purposes. Disparity grants address the difference in the abilities of counties to raise revenues from the local income tax, which for most counties is one of their larger revenue sources.

The Governor’s proposed budget fully funds the formula-driven fiscal 2021 allocation of $158.3 million for the Disparity Grant Program.

Transportation

Local governments – and, specifically, counties – maintain the lion’s share of the state’s roads and bridges. Unlike most other states, in Maryland, local governments own and maintain 83% of the roads

SB 516/HB 807 assured that most counties will see an increase in their total transportation funding by more than 40 percent, all the way through fiscal 2024.

The motor vehicle fuel tax, motor vehicle registration fees, a share of the motor vehicle titling tax, and a share of the corporate income tax are designated as Highway User Revenues (HUR). The state allocates a portion of these revenues to the counties and municipalities to help fund the construction and maintenance of local roads. Baltimore City receives 8.3% in FY 2021. The remaining counties and municipalities receive 3.2% and 2% respectively in FY 2021.

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Libraries

The libraries are funded at $83.8 million including retirement costs, a 0.8% increase over FY 2020.

Community Colleges

State funding of Maryland’s community colleges is based on the Senator John R. Cade funding formula which was established as law in 1996. The Cade funding formula was created to provide community colleges with predictable support for operations, and to provide students with affordable tuition.

The intent of the Cade formula is that community college costs be divided into equal thirds between the state, local government, and student tuition/fees. Unfortunately, due to budgetary constraints over the years, the Cade funding goal has typically not been met.

The original intent of the Cade funding formula was for the State to provide 29% of community college funding by 2012. However, the state has adjusted the formula seven times in the last ten years – delaying its commitment to fully fund the Cade formula.

In Governor’s FY 21 proposed budget, community colleges are funded through the Cade program at $268 million. While this is a 7.3% increase compared to FY 2020 funding, it is actually less than would have been dictated by the Cade funding formula (by approximately $18 million).

The capital budget includes $84.5 million for eleven colleges through the community college construction program and $4.2 million for facilities renewal projects at eight colleges.

In the proposed BRFA, the standard formula is amended to limit the growth of community college funding. Beginning in FY 2022, funding for community colleges is limited to the FY 2021 appropriation plus the annual percentage increase in General Fund revenues above the estimated annual increase in General Fund revenues, which is calculated by the Board of Revenue Estimates.

DLS estimates that this proposal would cut overall funding for community colleges by approximately $100 million by FY 2025.

Police Aid

The Governor’s proposed budget allocates $74.5 million in police aid to local governments, including $38.7 million in direct local law enforcement grants.

Local Health Departments

Core funding to local health departments totals $60 million, a $0.9 million increase over FY 2020.

School Construction

A total of $733 million is being provided for school construction – $280 million in the school construction program; $40 million in the Supplemental Capital Grant Program, $6.1 million for the Aging Schools Program; $3.5 million for improvements to aging non-public school facilities; $3.5 million for safety improvements to non-public school facilities; and $400 million in revenue bonds funded by a portion of casino revenues.

By custom, the House and Senate move the budget bill in alternate years – the House moves the budget in odd-numbered years, and the Senate moves the budget in even-numbered years. For example, the budget bill will start in the Senate this year.

Stay tuned to Conduit Street for more information.

Useful Links

Conduit Street Podcast: First Look at the Fiscal Plan

Previous Conduit Street Coverage: It’s Back! Governor Revives SDAT Cost Shift To Counties

Proposed (FY 2021) Budget Documents:

Budget Highlights

Proposed Operating Budget Detail by Agency

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