Governor Larry Hogan to Release Second Supplemental Budget

Governor Larry Hogan announced Sunday that the administration has reached an agreement with state leaders and is proposing over $23 million dollars of state funding for Baltimore City Public Schools, with another $5 million for several other counties.

According to a press release,

Governor Larry Hogan today announced that his administration has reached an agreement with leaders in the Maryland General Assembly and Baltimore City to provide additional state funding to Baltimore City Public Schools, contingent upon new fiscal accountability requirements for the school system.

The governor will submit a second supplemental budget, which will include $28.2 million in additional funding for K-12 public schools in Allegany ($793,000), Calvert ($240,000), Carroll ($1.6 million), Cecil ($190,000), Garrett ($456,000), Harford ($356,000), Kent ($215,000), Queen Anne’s ($22,000), Somerset ($455,000), and Talbot ($133,000) Counties, and Baltimore City ($23.7 million). The supplemental budget will be submitted to the legislature on Monday, March 27.

The release of funds for Baltimore City public schools is contingent on the passage of legislation requiring greater fiscal accountability, including a comprehensive audit of the city school system performed by an independent accountant in consultation with the Maryland Department of Budget and Management. These accountability requirements are the direct result of extensive discussions and negotiations by the Hogan administration, the legislature, Baltimore City Mayor Catherine Pugh, and Baltimore City School Superintendent Dr. Sonja Santelises.

Governor Hogan submitted his first supplemental budget on March 24, which provided additional funding to combat the state’s heroin epidemic, support education and economic development initiatives, and address public safety needs.

The second supplemental budget provides a temporary remedy to address “cliff effect” funding decreases due to declining enrollment and/or rising property values. MACo supports HB  684 / SB 1024 – State Grants for Education Aid, which would provide additional grant funding for counties facing decreased state education funding.

Useful Links

Governor’s Press Release

Previous Conduit Street Coverage: Why Do Five Jurisdictions Lose $45M In Education Funds?

MACo Testimony on HB 684

Previous Conduit Street Coverage: Hogan Proposes Supplemental Budget: Funds Included For Police, Colleges

March 31 Deadline for “One Time” School Spending Designation Approaching

As counties and school boards start building their FY 2018 budgets, a state deadline for one-time cost approvals approaches. A MACo guide helps county officials navigate the process.
State funding laws intended to encourage education spending, may discourage it by complicating the structure of funding and requiring certain submissions on a timeline that mishmashes with county budget processes.

State “maintenance of effort” laws require a county to provide the same amount of education funding or more on a per-pupil basis each year. Maintenance of effort can discourage additional investment, especially during a faltering economic recovery, when future revenues are uncertain.

A legal provision called nonrecurring costs, however, allow county governments provide one-time school funding for one-time education costs without triggering perpetual mandates.

The hitch is: the deadline for submitting nonrecurring costs is this month – before many counties even begin budget negotiations.

Perhaps as a result of this process, on average fewer than eight counties per year take advantage of this education budgeting tool.

Not all education costs are annually recurring per-student costs. One-time education expenses might include costs to:

  • build new computer laboratories;
  • make technology enhancements;
  • start-up new instructional programs; or
  • purchase books for a school library

The mechanism for appropriately excluding these one-time education costs from the maintenance of effort calculation requires special approval. A county must submit an application to exclude certain costs to the State Board for their approval before March 31 of each year.Screenshot 2016-01-18 17.22.16

Data from the Maryland State Department of Education (MSDE) in 2014 revealed that on average fewer than eight counties per year take advantage of this budgeting tool. Learning this, MACo developed Non-Recurring Costs For County School Budgeting: A County Official’s Guide to the Process and Laws Behind the System.

In the Guide, MACo aims to improve the accessibility and use of the nonrecurring cost exclusion, covering:

  • How does a county apply to have nonrecurring costs approved?
  • What categories of costs can be considered as nonrecurring?
  • When does the school board need to agree with the request?
  • What requests have been approved and denied in recent years?

All the submission forms, statutes, regulations, and guideline documents relevant to this process are provided in appendices to the Guide.

For more information, read Non-Recurring Costs For County School Budgeting: A County Official’s Guide to the Process and Laws Behind the System.

Bill to Offset Declining Enrollment Moving in Legislature

House Bill 684, “Education – Grant for Declining Education Aid,” has passed the full House and crossed over to the Senate. MACo supports HB 684, which would help to offset the sudden drop-off in education funding to jurisdictions with declining enrollment, ensuring school systems can offer equivalent courses and programs, even with fewer students.

The bill was amended to allow jurisdictions with declining enrollment average their student populations over three years, rather than account for single-year changes, and allow them to factor all-day pre-K student populations into total enrollment. The House Appropriations Committee also amended the bill to provide grant funding for three years instead of just for one year, as was originally proposed.

Five Jurisdictions–Baltimore City, Calvert County, Carroll County, Garrett County, and Talbot County–are slated to lose a combined $45M in state education funding in 2018. Baltimore City is the most deeply affected, with a $38m loss in year-to-year total state education funds.

From the MACo testimony,

Counties value public education as a high priority, and an essential service and benefit to the citizens and the economy. State Budgeting formulas and requirements complicate this commitment, especially because nearly all state education funding is distributed on a per-pupil basis, meaning that the more students a school system serves, the more funding it receives.

By contrast, when the number of students declines, schools can experience a sudden drop in funding. This dynamic can strain local budgets – reflecting the reality that not every dollar spent in a school system is truly a “variable cost.” A sudden drop in students across a county school system may mean some cost savings in bus transportation and meals service – but may not have any effect on “fixed costs,” which account for most system-wide expenditures on education and administration.

To learn more about Maryland’s school budgeting formula, read “Why do Five Jurisdictions Lose $45M in Education Funds?” on MACo’s Conduit Street Blog.

For more on MACo’s advocacy efforts during the 2017 legislative session, visit our Legislative Tracking Database.

Senate Committee Votes On Budget: Disparity Grants, Transportation Aid Affected

Today the Senate Budget and Taxation Committee made a number of decisions on the budget which affect counties. The Committee concurred with the House to reject proposals to shift additional costs for State Department of Assessment and Taxation (SDAT) operations and local health department contractual employees’ health care to the counties. The Committee adopted new language concerning disparity grants and local transportation aid.

Disparity Grants Back, But…

Like the House, the Committee voted against a  Budget Reconciliation and Financing Act of 2017 (BRFA) provision which would flat fund disparity grant aid, to levels set as of the November 2, 2016 Department of Public Works meeting. However, the Committee added budget language to restrict the disparity grants for each jurisdiction receiving an increase in fiscal 2018, requiring those jurisdictions to spend that money on public schools – over and above the amounts required to meet maintenance of effort. Language says:

Further provided that $6,028,886 of the appropriation made for the purpose of disparity grants shall not be expended until each of the following jurisdictions certify that it will spend the following amounts, equal to what that particular jurisdiction receives in excess of the fiscal 2017 grant, to increase local spending on public schools above the amount required to meet maintenance of effort for fiscal 2018.

Baltimore City                      $946,445

Cecil County                          $196,240

Prince George’s County     $4,245,462

Washington County            $52,938

Wicomico County                $587,801

Highway User Revenues Pared Back, DLS Concerns Addressed

The Committee voted to include BRFA language to address concerns expressed by the Department of Legislative Services (DLS) that the Governor’s “capital grants” are titled incorrectly and programmed inappropriately in out years. The Committee approved inclusion of the following language in existing statute:

Except as authorized by law, the Consolidated Transportation Program may not include capital transportation grants to counties or municipal corporations for any period beyond the budget request year ….

For the period beyond the budget request year, the financial forecast:

  1. Shall maximize the use of funds for the capital program; and
  2. Except as authorized by law, may not withhold or reserve funds for capital transportation grants to counties or municipal corporations.

The Committee approved the Public Safety, Transportation and Environment Subcommittee’s recommendation to provide 23 counties with $8.8 million in additional local transportation aid from last year. This is a reduction from the Governor’s proposal, which was adopted by the House, to provide transportation capital grants to counties and Baltimore City. Counties’ share was reduced from $27.4 million to $12.8 million, and Baltimore City’s share was reduced from $5.5 million to $3.7 million. These sums include the $4 million provided to counties and $2 million provided to Baltimore City for the last two years.

Senate Concurs With House Recommendation To Reject SDAT Cost Shift

The Committee concurred with the House and voted against the Governor’s proposal to shift costs for operating SDAT onto the counties. It voted to accept the DLS’s recommendation to  reject the proposal, which would increase counties’ reimbursement for SDAT functions including costs of real property valuation, business personal property valuation, and information technology. It also would have made counties responsible for a portion of costs of the Director’s Office.

Once the Senate adopts its proposed budget on the chamber floor, the budget committees will meet in conference committee to arrive at consensus decisions on these and all budgetary items.

Helpful Links:

House Looks Out For Counties In The Budget

Senate Subcommittee Pares Back Highway User Revenues

Senate Subcommittee Concurs on Rejecting Local Health Department Cost Shift

MACo Opposes Prevailing Wages on Public Construction TIF Bond Projects

MACo Associate Director Barbara Zektick testified in opposition of legislation (SB 870) which would require payment of prevailing wages on construction contracts receiving any funds from tax increment financing (TIF) bond proceeds. Counties are concerned that this bill will drive up costs of public infrastructure projects, stifle use of a demonstrably successful economic development tool, and squeeze out small businesses from participating in infrastructure construction projects.

MACo’s testimony states that the bill,

unfairly applies prevailing wage requirements to certain projects receiving TIF bond proceeds when those projects would not otherwise have to comply even if financed with other public funds.

…this bill will significantly raise costs for development projects funded with TIF bonds. If costs are raised over and above what the development will return in future tax revenues, the county will not issue the TIF because it is not economically viable. This generally prevents the development from occurring, sacrificing blight elimination, job creation, targeted economic development, and growth to the taxable base.

Under existing law, prevailing wages are required on public works contracts valued at $500,000 or more. However, the only threshold in SB 870 is the amount of the TIF bond, applying the wage requirements to any contract funded with a TIF bond valued at $500,000 or higher. It is extremely unlikely that a local government would issue a TIF bond of less than this amount. Therefore, the bill would require payment of prevailing wages for virtually any construction project receiving TIF funds, regardless of the size of the contract or scope of the project. This extremely broad scope unfairly applies higher-than-market wage requirements to projects in TIF districts where these terms would not apply to public works contracts in any other situations.

At the hearing, Senator Stephen Hershey asked why the state would establish a mandate for how TIF money must be spent, if counties created the TIF districts, constructed the deals, issued the bonds and financed the projects with county property tax revenues. MACo further emphasized that counties already have the ability to require prevailing wages in TIF projects on a case by case basis  – and it should remain this way.

This bill was heard by the Senate Finance committee on March 16.

Follow MACo’s advocacy efforts during the 2017 legislative session here.

You’re Invited: Join Us for Our Weekly Legislative Update Conference Call

Every Friday during the legislative session MACo will host a conference call that will update you on the Maryland General Assembly hot topics and bills that affect local governments. Join the conversation at 3:00 pm each week as MACo explores different topics and hosts guest speakers.

This week’s topic (March 17): “Crossover Roundup”

MACo Policy Associate, Kevin Kinnally will be joined by MACo Executive Director, Michael Sanderson for a “Crossover Roundup.” To become a law, every bill must pass identically in both the Senate and House before being sent to the Governor for his consideration and signature or veto. For a bill to be considered in the opposite chamber, it ideally should pass by ‘Crossover Day’ – next Monday. Call in for an update on MACo’s 2017 initiatives, as well as a number of other bills on our tracking list.

Conference call information: 1.877.850.5007, passcode: 2690043#

We look forward to your participation! Submit your questions in advance by e-mailing Kevin Kinnally.

Proposed $15 Minimum Wage Would Have Costly Impact on County Budgets

MACo Policy Associate, Kevin Kinnally, submitted written testimony opposing the $15 minimum wage by 2023 (SB 962). Counties are concerned this legislation will have significant fiscal and operational impacts on local governments.

MACo’s testimony states,

Counties employ thousands of Maryland residents, including full-time, part-time, seasonal, and grant-funded employees. Full-time and grant-funded employees are generally paid on a salary basis. However, part-time and seasonal employees may be paid on an hourly basis. According to the bill’s fiscal note, raising the minimum wage in such a drastic fashion will cost local governments millions of dollars per year.

As a rule, MACo resists state policies that result in costly or burdensome local implementation. SB 962 would place a significant fiscal burden on county governments. Under state law, counties have no choice but to fund these costs – competing for limited local funds against education, public safety, roadway maintenance, and other essential public services.

Many part-time and seasonal employees work in community services, such as after-school activities, summer camps, and community services for vulnerable populations. Accommodating this legislation could result in significant cuts to those programs.

SB 962 was heard by the Senate Finance Committee on March 15, 2017. The cross-file, HB 1416, was heard by the House Economic Matters Committee on March 7, 2017. Click here for previous Conduit Street coverage.

Follow MACo’s advocacy efforts during the 2017 Legislative Session here.

MACo Supports Grant Funding to Offset Declining Enrollment

MACo Policy Associate, Kevin Kinnally testified in support of Senate Bill 1024, “Education – Grant for Declining Education Aid,” to the Senate Budget & Taxation Committee on March 15, 2017.

SB 1024 would help to offset the sudden drop-off in education funding to jurisdictions with declining enrollment, ensuring school systems can offer equivalent courses and programs, even with fewer students.

Five Jurisdictions–Baltimore City, Calvert County, Carroll County, Garrett County, and Talbot County–are slated to lose a combined $45M in state education funding in 2018. Baltimore City is the most deeply affected, with a $38m loss in year-to-year total state education funds.

MACo’s testimony states,

Counties value public education as a high priority, and an essential service and benefit to the citizens and the economy. State Budgeting formulas and requirements complicate this commitment, especially because nearly all state education funding is distributed on a per-pupil basis, meaning that the more students a school system serves, the more funding it receives.

By contrast, when the number of students declines, schools can experience a sudden drop in funding. This dynamic can strain local budgets – reflecting the reality that not every dollar spent in a school system is truly a “variable cost.” A sudden drop in students across a county school system may mean some cost savings in bus transportation and meals service – but may not have any effect on “fixed costs,” which account for most system-wide expenditures on education and administration.

To learn more about Maryland’s school budgeting formula, read “Why do Five Jurisdictions Lose $45M in Education Funds?” on MACo’s Conduit Street Blog. The cross-file, HB 684, was heard in the House Appropriations Committee on February 21, 2017. Click here for previous Conduit Street coverage.

For more on MACo’s advocacy efforts during the 2017 legislative session, visit our Legislative Tracking Database.

Both Chambers Pass Bill to Close Gap in Teachers Pensions

A bill which addresses the shortfall in funding required to meet the portion of Maryland state teacher pension costs that exceed costs anticipated during the 2012 “pension shift” is on the move in the General Assembly. House Bill 1109 / Senate Bill 1001, “Teachers’ Retirement and Pension Systems – County Boards of Education Payments,” passed second reader in both the House and Senate, with amendments.

The actual normal costs of teacher pensions in fiscal year 2017 are approximately $19.7 million more than the amount that local school boards were estimated to provide in legislation passed by the General Assembly in 2012.

The additional funding required in fiscal year 2017 is mainly attributable to changes outside of the control of local school boards. At the same time, absorbing this additional cost in fiscal year 2017 could put pressure on school board budgets, and county governments who provide much of their funding.

The amendments allow the state to pay the difference in either FY 2018 or FY 2019.

MACo joined the Maryland Association of Boards of Education in supporting the bill.

Useful Links

MACo testimony on HB 1109 / SB 1001

For more on 2017 MACo legislation, visit the Legislative Database

Queen Anne’s Earns AAA Bond Rating for the First Time Ever

For the first time in county history, Queen Anne’s County has earned a AAA bond rating from Fitch Ratings.

According to the press release,

Recently, the county’s Finance Director Jonathan Seeman, County Administrator Gregg Todd, and County Commissioner Stephen Wilson went to New York City to present their case for a higher bond rating to the two major rating firms Fitch and Moody’s.

The county went to the bond markets to finance $12.6 million in long-term capital debt such as the new Circuit Court House, school building improvements, and the purchase of heavy equipment, such as that used to clear the roads of snow.

“Fitch gave us AAA, but Moody’s kept us at Aa2, which is two steps below AAA. We’ll keep trying,” said Seeman. “You have to remember, that after the recession, only a few years ago, when we had no Rainy Day fund, we were rated AA+, but with a negative outlook, by both agencies. Getting the AAA is quite an accomplishment for the county.”

“Since then, we’ve shown that the county commissioners have restored the county to sound fiscal management, with stable revenue growth, above average reserves, and relatively low levels of debt. With this rating from Fitch, we’ve joined an elite group of AAA rated counties in Maryland as well as the State of Maryland government, that have this rating ,” Seeman said.

Congratulations to Queen Anne’s County!