Supplemental Budget Proposed: Funds Disparity Grants, Updates Education Funding

Governor Moore has introduced a first Supplemental budget for FY24 – notably recognizing updated information on taxable income by county, which drives multiple funding formulas affecting counties and school systems. 

Supplemental Budget #1 was introduced Friday, March 3 – and is the first adjustment to the Governor’s proposed budget. Under Maryland law, the Governor may revise the proposed budget through this supplemental process, as many times as desired, but the General Assembly must receive and approve the revisions made after the introduction of the original budget bill, this year House Bill 200.

The House Appropriations Committee heard a staff briefing on the Supplemental budget on March 7. The staff analysis presented is available online. The Committee meeting including the staff briefing on the Supplemental Budget is available online.

The overall effect of Supplemental #1 is a reduction in State spending, most notably on formula-driven funding for public schools. The bill does increase funding to counties under the Disparity Grant program, as was confirmed at a recent meeting with the MACo Legislative Committee.

Revising “Net Taxable Income” and Why it Matters

The driving issue underlying these two major changes is that incomplete information on county tax bases, specifically each county’s “net taxable income,” was provided to develop the Governor’s FY24 budget. The corrected data became available after that process had taken place, and updating multiple budget components here are attributable to that updated, more complete, information.

The State uses this source data, on the taxable income of residents in each county, in multiple ways:

-The Disparity Grant program provides additional funds to counties that generate substantially less revenue from income taxes, relative to the Statewide average

-Most State Aid to Education is based on a wealth-equalizing formula, with county net taxable income as one of its two major components, which guides the State/local share of total funding for each jurisdiction

The updated information about county net taxable income includes a number of late-filed returns, with those late-filed returns generally being more complicated and often coming from higher-income filers. So, the net effect of the updated data is to show jurisdictions with a relatively high density of late-filed returns to appear more wealthy, relative to the statewide average.

Under the Disparity Grant program, each jurisdiction receiving funds is scheduled for a funding increase by recognizing the revised income data, as they (in effect) fell further behind the statewide average. Supplemental Budget #1 includes over $53 million to update those distributions.

The effects of this change are shown below:

In Aid to Education, the revisions of wealth data changes the State/local funding split for every jurisdiction, in different ways. Those jurisdictions who fell further behind the statewide average income tax per pupil would see additional State aid, and an offsetting reduction in required local support (unless the county is otherwise subject to its own “Maintenance of Effort” calculation). Other counties who gained relatively more net taxable income would see the reverse – a reduced share of State aid, and an increase in county required funding.

The summary of these effects on State required education funding are shown below:

Each county school system has recently received updated information regarding the updated calculations on State funding, county required funding, to fully incorporate the revised formulas accounting for the more complete income data.

Michael Sanderson

Executive Director Maryland Association of Counties