Franchot Says He Will Oppose Proposal to Slash County Disparity Grants

Maryland Comptroller Peter Franchot
Maryland Comptroller Peter Franchot

Maryland Comptroller Peter Franchot is poised to oppose several of Governor Larry Hogan’s proposed budget cuts to account for increased spending and reduced revenues amid the COVID-19 public health crisis.

As previously reported on Conduit Street, the Board of Public Works — a three-member panel which includes Governor Larry Hogan, Comptroller Peter Franchot, and State Treasurer Nancy Kopp — tomorrow will consider $672 million in state budget cuts as part of the Department of Budget and Management’s effort to offset COVID-19-related economic woes.

Comptroller Franchot says he will vote against proposals to slash the county Disparity Grant program — which promotes fiscal equity by providing noncategorical state aid to less affluent counties with proven local income tax effort — and eliminate the Supplemental Teacher Retirement Grant, which helps offset the impact of shifting teacher pension costs to counties.

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Source: Board of Public Works Meeting Documents – July 1, 2020

According to Maryland Matters:

[The Comproller] served notice on Monday that he will vote against 20 of the governor’s recommendations, totaling $205 million, according to a document obtained by Maryland Matters.

Broadly, the cuts Franchot said he cannot support involve education spending, teacher and state employee pay and retirement, programs that benefit young people, and supplemental aid to counties that lack the ability to raise large sums through the property tax.

MACo last week sent a letter to Governor Hogan, Comptroller Franchot, and Treasurer Kopp urging caution against cuts to the county Disparity Grant program.

From the MACo letter:

The Maryland Association of Counties (MACo) respectfully requests that you carefully consider any dramatic reductions to county Disparity Grant program. Unlike other state grants and “aid,” the disparity grant is designed to promote equity across jurisdictions to overcome disparate tax bases. Counties have made difficult tax rate decisions based on the state law governing these grants – to undermine them would be especially untoward even during times of mutual fiscal strain.

While counties recognize the importance of ensuring the structural soundness of the State’s budget, counties, too, are grappling with unprecedented budgetary shortfalls. MACo advocates for a balanced approach that would not result in shifting the tax burden onto the counties, or simply shifting from one revenue source to another.

Counties are making significant financial investments to address immediate public health and safety needs. At the same time, counties are experiencing massive and unprecedented declines in revenue as a result of the COVID-19 pandemic. The combined effect of these changes will likely undermine county revenue structures and support for essential services.

The disparity grant program promotes fiscal equity by providing noncategorical state aid to less affluent counties with proven local income tax effort. The program serves to ensure that counties, who rely on local income taxes for substantial revenue, are able to generate sufficient yield to fund education, public safety, roadway maintenance, and community services.

Recent years have seen State-imposed “caps” in this program that artificially lessen the effective revenue from such jurisdictions, including those who have exercised the maximum county income tax rate. Over the past five years, cap provisions have reduced state funding under the disparity grant program by approximately $233 million.

The State will not resolve economy-driven budget pressures by shifting costs to another level of government facing the same pressures. Cutting the disparity grant program will have a disproportionate effect on less affluent counties and exacerbating pressures at the local level by undermining county revenue structures and support for education, public health, public safety, and other essential services.

MACo and county leaders are prepared to work with state policymakers on this issue⎯and other considerations⎯as part of a responsible balanced budget plan. MACo hopes that State leaders recognize that burdens on county budgets are substantial, and these challenges would only be worsened by added cost shifts or disproportionate budget cutbacks on county programs.

Under the provisions of §7-213(a), State Finance and Procurement Article, the Governor, with the approval of the BPW, may reduce, by not more than 25%, any appropriation the Governor considers unnecessary. The BPW may not reduce appropriations for the payment of the principal and interest on state debt, public schools mandated funding (including the School for the Deaf and the School for the Blind), or the salary of a public officer during the term of office.

The Board of Public Works — which reviews projects, contracts, and expenditure plans for state agencies – many of which have an effect on county governments — will consider the proposed cuts in a virtual meeting on Wednesday, July 1.

Stay tuned to Conduit Street for more information.

Useful Links

Previous Conduit Street Coverage: Maryland Board of Public Works – July 1, 2020 Agenda

Board of Public Works Meeting Documents – July 1, 2020

Previous Conduit Street Coverage: DLS: Fully Fund Disparity Grant Formula

Previous Conduit Street Coverage: Fiscal Leaders: State Revenue Shortfall Could Hit $4 Billion by FY 2022

Previous Conduit Street Coverage: Hogan Orders State Budget Freeze Amid COVID-19 Crisis