New income tax data reveals the Disparity Grant Program is underfunded by $54 million.
The Disparity Grant Program provides noncategorical State aid to low-wealth jurisdictions. It promotes equity across jurisdictions to overcome disparate tax bases — ensuring that counties, which rely on local income taxes for substantial revenue, can generate sufficient yield to fund schools, public health, public safety, roadway maintenance, and other essential community services.
Recent years have seen State-imposed “caps” in this program that artificially lessen the effective aid for eligible 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 hundreds of millions.
Fiscal 2024 Disparity Grant Calculation
For fiscal 2024, the Governor’s budget includes $167 million for the Disparity Grant program, a formula-driven increase of $5.3 million over fiscal 2023.
New Tax Data Reveals Disparity Grant Underfunded by $54 Million
One of the formula’s components to calculate the Disparity Grant is each county’s income tax revenue from the prior tax year. In the case of the fiscal 2024 allowance, the tax year used for the calculation is 2021.
The Comptroller of Maryland annually produces a report that includes this information. However, delays in processing tax returns led the Comptroller to issue a revised report this month showing 20 percent increases in county tax revenues rather than the 8.5 percent increase shown in the earlier report.
According to a Department of Legislative Services (DLS) budget analysis, using the updated information, the Disparity Grant Program is underfunded by $54 million. As such, DLS recommends that the Department of Budget and Management comment on the potential use of a Supplemental Budget to correct the underfunding.
It should be noted that “county wealth” is central to determining the State funding levels for schools in each jurisdiction. The formula for determining each county’s “wealth” is a blended value of the county’s property assessments and the total net taxable income for county residents. Because State education aid is distributed inversely to wealth per student, the updated income tax data will impact education aid in at least some counties.
Stay tuned to Conduit Street for more information.
Useful Links
DLS Budget Analysis: Payments to Civil Divisions of the State
DLS: Overview of State Aid to Local Governments – Fiscal 2024 Allowance
Conduit Street: Governor’s 2024 Budget – What It Means for Counties
Conduit Street: State Answers MACo’s Call to Restore Cuts to County Disparity Grants
