2023 End of Session Wrap-Up: State Operating Budget

The segments below provide a brief overview of MACo’s work on State budget policy in the 2023 General Assembly.

County governments receive support through multiple state operating budget programs, and shifts in the State’s budget can affect county governments. MACo seeks county budget security by maintaining current State funding levels, new funding programs, and enhancements in areas of growth and need.

In addition to the swearing-in of a new governor, the 445th legislative session kicked off with more relaxed health and safety measures compared to the turbulence of the last few years. This enabled MACo’s policy team to dynamically engage with private-sector stakeholders, legislators, and representatives across all levels of government. Under these more conventional circumstances, MACo’s advocacy led to a plethora of favorable outcomes for its members.

Follow these links for more coverage on our Conduit Street blog and Legislative Database.

State Operating Budget

The Maryland General Assembly passed a $63 billion fiscal 2024 budget, which provides $11.5 billion in aid to local governments — more than $1 billion over fiscal 2023. The funding increase is driven primarily by an additional $811 million for K-12 education/libraries.

The budget does not shift any costs to county governments. It fully funds all state-mandated spending formulas, including increases for community colleges, highway user revenues, local health departments, and county disparity grants.

Highlights of the State budget include:

Achieves Structural Balance: Ongoing general fund revenues exceed ongoing expenditures by over $150 million in fiscal 2024.

Preserves Reserves: About $2.85 billion in cash resources are preserved, including $2.5 billion in the Revenue Stabilization Account (Rainy Day Fund) (10 percent of general fund revenues) and $351 million in the General Fund. The level of reserves retained for the future exceeds the goals of the Spending Affordability Committee.

Reserves Funds for Tax Relief: The budget plan reserves almost $200 million of general funds to provide tax relief at roughly the same level as the governor proposed.

Saves Resources to Meet the State’s Commitment to Fund the Blueprint: The budget plan appropriates $900 million to the Blueprint for Maryland’s Future Fund to cover the out-year costs of Blueprint implementation.

Increases Funding for Public Schools: Under the committee’s budget proposal, State support for public schools will total $8.7 billion. Direct aid to local school systems will increase an estimated $660.7 million, or 9.1 percent, including full funding of all fiscal 2024 Blueprint mandates.

What the Budget Means for Counties

Revising “Net Taxable Income” and Why it Matters

One of the formulaic components to calculate the Disparity Grant and State education aid is each county’s income tax revenue from the prior tax year. For 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 showing 20 percent increases in county tax revenues rather than the 8.5 percent increase shown in the earlier report. The corrected data became available after the Comptroller received new data, and updating multiple budget components here is attributable to that updated, more complete information.

The updated information about county net taxable income includes several late-filed returns, which are generally more complicated and often come 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.

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.

Disparity Grants

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.

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. The governor included over $53 million in a supplemental budget to update those distributions.

The effects of this change are shown below:

Education

In Aid to Education, the revisions of wealth data change the State/local funding split for every jurisdiction in different ways. Those jurisdictions that 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 that gained relatively more net taxable income would see the reverse – a reduced share of State aid and increased county-required funding.

In fiscal 2024, State support for public schools will total $8.7 billion. Direct aid to local school systems will increase an estimated $660.7 million, or 9.1 percent, including full funding of all fiscal 2024 Blueprint mandates.

Community Colleges

The budget includes $476.3 million provided through the Cade formula. This $40 million annual increase in funding reflects a 12 percent increase in State support for local community colleges.

Transportation

In fiscal 2024, local highway user revenues will total $331.4 million, representing a $57.2 million or 20.8 percent increase from the prior year.

Since fiscal 2010, local highway user revenues have increased by $167.9 million, representing a 5.2 percent average annual increase. Despite this increase, State funding for local highway user revenues remains below the funding provided in fiscal 2007, when funding reached a high of $554.9 million.

County and municipal shares are based on road mileage and vehicle registration. In fiscal 2024, county governments will receive $78.6 million, and municipal governments will receive $51.0 million. Baltimore City has generally received a larger share of local highway user revenues than other jurisdictions because the State does not conduct highway maintenance or construction within the city (except for portions of I-95). As a result, Baltimore City will receive $201.8 million.

These distributions increase for fiscal 2025 through fiscal 2027. Beginning in fiscal 2028, the allocations revert to the fiscal 2024 distribution, as shown below:

Police Aid

The budget includes $75.8 million for police aid, a $0.8 million or 1.1 percent decrease over the prior year. Both county and municipal governments receive funding under the program.

The State gives grants to local governments to help provide police protection services, which are distributed through a formula based on population and population density. Grants are shared between counties and municipalities based on expenditures, and cities receive an additional grant based on the number of police officers.

The budget also includes $45.9 million in enhanced funding for police aid to address violent crime, representing the second year that the State budget included additional funding for this purpose. The allocation is based on each jurisdiction’s share of violent crimes committed across the state. Violent crime offenses include murder and nonnegligent manslaughter, rape, robbery, and aggravated assault.

Local Health Departments

The budget includes record funding for local health departments, which grows to nearly $116 million, a 14.3 percent increase over the current year’s budget.