This article is part of MACo’s Policy Deep Dive series, where expert policy analysts explore and explain the top county policy issues of the day.

Maryland created the Disparity Grant to deal with a basic problem. Counties raise revenue very differently, even when they apply the same tax rates. Some generate far more at the same rate because of higher incomes, while others cannot keep up.

The program still tries to address that gap. But State policy decisions continue to limit how much support actually reaches the counties that qualify.

The Short Version

The Disparity Grant helps counties with weaker tax bases fund core services like education, public safety, and infrastructure.

The State calculates what those counties should receive based on their income tax capacity compared to the statewide average.

Then the State reduces that amount through caps and budget decisions.

Counties that qualify already make a strong local tax effort and still fall short. The program helps, but it does not deliver what it shows on paper.

What the Disparity Grant Does

Counties rely heavily on the local income tax. That means revenue follows income levels, not service demand.

Wealthier counties generate more revenue at the same rate. Others cannot, even with higher effort.

The Disparity Grant measures that difference. It compares each county’s per capita income tax yield to the statewide average and fills in part of the gap.

Nine jurisdictions qualify: Baltimore City and Allegany, Caroline, Dorchester, Garrett, Prince George’s, Somerset, Washington, and Wicomico counties. These jurisdictions still must fund the same services as wealthier areas, and the grant helps them do it.

2026 Session: General Assembly Rejects Proposed Cuts

The governor’s budget proposed cutting $27 million from the Disparity Grant and freezing funding for several years.

MACo urged the General Assembly to reject that approach. Counties made clear that the proposal would eliminate formula-driven increases and further weaken a program designed to address real differences in local tax capacity.

The General Assembly rejected the proposal.

That decision preserves funding at a level counties rely on and avoids widening the gap between jurisdictions with strong and limited tax bases. At the same time, the State continues to cap the program below what the formula would otherwise provide, leaving the broader issue unresolved.

Why the Numbers Don’t Add Up

The State runs a calculation each year to determine how much funding eligible counties should receive.

For fiscal 2027, that calculation reaches about $261 million statewide.

The net effect of cap/floor provisions reduces that amount to about $204 million, withholding roughly $57 million in formula-driven funding.

Over the past several years alone, State caps and policy overrides have reduced Disparity Grant funding by well over $150 million compared to formula-driven levels. Since the 2009 cap, the cumulative impact has reached into the hundreds of millions.

That gap does not reflect changes in need. It reflects policy decisions that limit how much of the formula the State delivers.

Who Qualifies and Why It Matters

The Disparity Grant targets counties with weaker income tax capacity.

The State measures how much revenue each county generates per resident and compares it to the statewide average. Counties below that threshold qualify for support.

Local effort matters. Counties that raise their income tax rates receive more support, with the highest benefit going to jurisdictions at or near the maximum rate.

Even then, the gap remains.

For example, Baltimore City taxes at the maximum rate but still generates far less per resident than wealthier counties. Prince George’s County, Wicomico County, and others face similar challenges. They must fund the same services with fewer available resources.

The Disparity Grant helps close that gap, but it does not eliminate it.

How the State Changed the Program

The Disparity Grant started as a formula-driven equalization tool. It aimed to bring lower-capacity counties closer to 75% of the statewide average.

That changed over time.

In 2009, the State froze funding at fiscal 2010 levels. That broke the link between funding and current economic conditions.

Later changes added minimum funding levels tied to local tax effort. Counties that raised rates qualified for higher minimum shares, including a 75% floor for those at the maximum rate.

These changes get layered on top of each other. The result is a system shaped as much by policy decisions as by the underlying formula.

Why It Swings So Much

The Disparity Grant relies on a single year of income data.

That creates volatility. Capital gains and other non-wage income can drive large swings, especially in higher-income counties. When those numbers rise, the gap between counties grows. When they fall, the gap shrinks.

That movement drives changes in the formula from one year to the next.

Local tax decisions add another layer. Counties that lower their rates lose eligibility for certain funding levels, while counties at the maximum rate depend more heavily on the program.

The Core Problem: Instability

Counties have done what the system asks. They increased tax effort, met eligibility requirements, and built budgets around the program.

The funding does not follow consistently.

The State limits the program from year to year. Counties cannot rely on the amount calculated when building budgets.

That creates uncertainty and adds pressure to counties that already operate with limited fiscal flexibility.

Bottom Line

The Disparity Grant addresses a real gap in Maryland’s tax system.

The General Assembly’s decision this year avoided another reduction and preserved current funding levels. But the State continues to limit how much of that gap it will fund.

Until that changes, counties will continue to plan around a system that does not fully deliver what it promises.

Stay tuned to Conduit Street for more information.