Legislation based on a statewide school construction Commission’s findings is introduced in the General Assembly, and it is off to a good start.
The 21st Century School Facility Commission’s work took place over two years, and the legislation, HB 1783, is a late-introduction in the 2018 Session. However a quickly-scheduled hearing that included much support indicates positive outlook for the bill – which includes many elements that have been the subject of MACo advocacy for more than 5 years.
Martin Knott, the Chair of the 21st Century School Facilities Commission called the legislation “an amazing step forward” and applauded his “Commission members who worked on this for two years.”
In response to a legislator’s question as to whether the Commission looked at square footage of school construction, Knott replied, “Over the course of two years. . . we looked at square inches.”
MACo’s panel and written testimony shared support for several aspects of the legislation, including:
New State school construction annual funding goal of $400 million
Regulatory relief from environmental and emergency sheltering mandates
Flexibility in use of alternative financing methods
Further study of eligible costs regulations and prevailing wage laws
Commissioner Levengood of Caroline County stated, “School construction costs have increased dramatically, as I’m sure you know. At the local level, we are seeing those effects throughout our counties in different ways. Progress can feel slow.”
MACo also suggested several amendments to the legislation, including advocating for a higher state commitment to school construction funding, clarifying maintenance of effort laws in relation to alternative financing, and bringing parity to state and local school construction funding through expanding the types of costs eligible for state funding.
While the bill’s annual goal of $400 million in State school construction funding is a positive shift from the prior standard of $250 million/year, county budgeted expenditure for school capital has exceeded $600 million annually – since 2012.
The Chair of the House Appropriations Committee shared that she would be establishing a joint House-Senate work group to review all amendments to the legislation, in light of the approaching deadline for bills to cross over to the opposite house (March 19, 2018).
Baltimore County has been awarded a $20 million federal grant for infrastructure improvements and expansion of aging marine facilities at Tradepoint Atlantic. The U.S. Department of Transportation’s Transportation Generating Economic Recovery (TIGER) grant will be matched by private investment from Tradepoint Atlantic, developer of 3,100 acres at Sparrows Point.
“This public/private infrastructure investment will ignite job creation in Baltimore County and the entire region by speeding up the turnaround of Sparrows Point from a shuttered steelmaking site into a modern hub for global commerce,” said Baltimore County Executive Kevin Kamenetz.
With funding from the TIGER grant, Tradepoint Atlantic will make structural upgrades to the East-West Berth, modernize it for efficient movement of 21st century cargo, strengthen bulkheads, perform maintenance dredging to allow deep water ships access to the marine terminal, and other necessary improvements designed to leverage existing rail and highway systems on the site.
The investments in dredging, a stronger berth, and short line rail track will facilitate efficient and safe loading and unloading, reducing handling costs for shippers using the facility.
The project will expand the region’s bulk handling capability by restoring an obsolete regional marine asset to a state of good repair. The modernization program expands bulk cargo handling capability at Tradepoint Atlantic and does not introduce container cargo handling to the site.
The grant projects will span four years. The TIGER grant is led by the Baltimore County Department of Economic and Workforce Development.
A recent economic impact report projects Tradepoint Atlantic will generate 17,000 jobs in the Baltimore region, plus another 21,000 jobs during construction. Economic impact is projected to top $3 billion when development of the 3,100 acre site is completed in 2025, according to the Sage Policy Group study.
“There are more than 17,000 jobs on the horizon at full development, but jobs already are coming back to Sparrows Point from world class companies including FedEx Ground, Amazon and Under Armour,” added Kamenetz.
On the latest episode of the Conduit Street Podcast, Kevin Kinnally and Michael Sanderson discuss a potential “deal” on local roads funding, explain MACo’s position on the Budget Reconciliation and Financing Act (BRFA), break down the Knott Commission school construction legislation, and examine a new proposal for funding to enhance school safety across Maryland.
MACo has made the podcast available through both iTunes and Google Play Music by searching Conduit Street Podcast. You can also listen on our Conduit Street blog with a recap and link to the podcast.
If you are having trouble using this media player, listen on our website.
Highway User Bill in the Fast Lane – “Deal” Locks in 5yr Funding Increase
A House Committee has amended and is advancing HB 807, legislation to increase state funding for locally-maintained roads and bridges. The five-year plan would set new, higher levels of funding for county and municipal roadways beginning in FY 2020. Signs point to the bill marking a negotiated “deal” including legislative leaders from both chambers, clearing its path to passage this session.
Both MACo and MML have made restoring Highway User Revenues a top priority for years, as recession-driven cuts left local governments with a fraction of historic funding levels of state transportation revenues.
The amended version of HB 807 would roughly double the funding for county governments in each year — to approximately $58 million each year. The funding would be designated as “capital transportation grants” rather than simple statutory distributions (the effect of this terminology change on local governments is unclear, but may be negligible). The new funding level for counties would represent 3.2% of the funds from the Highway User Revenues, coming from taxes on motor fuels, vehicles, and other transportation-related sources — an increase from 1.5% today (through a combination of traditional HUR and capital grants).
The municipal share would be adjusted to 2.0% of the total, and the share for Baltimore City (which has the unique responsibility of maintaining nearly all state roads within its boundaries) is adjusted to 8.3%.
MACo On BRFA: Drop the SDAT Cost-Shift, Don’t Permanently Cap Formula Increases
At this week’s hearing on the Budget Reconciliation and Financing Act of 2018 (“BRFA”), Department of Legislative Services (DLS) analysts recommended striking the provision which would shift 90 percent of costs for certain State Department of Assessments and Taxation (SDAT) functions onto the counties – concurring with MACo’s suggested amendment to delete this provision from the BRFA.
As introduced, the bill would shift nearly all costs for SDAT’s property assessment, information technology and Office of the Director costs onto the counties. Currently, counties fund 50 percent of assessment and information technology functions. The cost shift would have placed an additional $20 million on the backs of county budgets.
Section 8 of the BRFA is intended to reduce out-year expenditures by permanently capping formula increases in statutorily mandated programs to the level of general revenue growth minus 1 percent. In effect, this section could have some of the deepest and longest-lasting effects of any fiscal policy, as formulas and spending priorities would be dramatically abrogated over time. The effect of this “mandate relief” would place important county programs in jeopardy and uncertainty. MACo urges the Committees to reject this section of the BRFA, and to retain the year-by-year public hearings and evaluations of any cuts and changes needed to effect that year’s budget plan.
Unpacking the School Construction Legislation
The Knott Commission bill, expecting to be a major piece of legislation in the 2018 Session of the General Assembly has now been introduced.
One of the main questions with regard to the Knott Commission’s recommendations was how its main suggestion – that the State conduct an assessment of every school facility in use and rank them – would affect the State’s priorities for school construction funding.
HB 1783 leaves that question for another day by establishing a work group to review the results of the first assessment and whether the results should be incorporated into school construction funding decisions. The 9-member Work Group on the Assessment and Funding of School Facilities would be chaired by the State Superintendent of Schools and would include a representative of MACo.
In the wake of a mass shooting at a Florida high school that triggered an outcry for accountability and reform, Governor Larry Hogan announced that the administration will commit an additional $125 million to accelerate and enhance safety improvements in schools, including secure doors and windows, metal detectors, security cameras, panic buttons, and other capital improvements. Hogan also announced he will allocate an additional $50 million in operating funds each year for new school safety grants, which could be used for school resource officers, counselors, and additional safety technology.
The funding will be allocated through the governor’s education lockbox proposal, which provides an additional $4.4 billion in education spending from casino revenues.
As an immediate step to activate the emergency legislation, the governor announced a supplemental budget that provides an additional $5 million for the Maryland Center for School Safety, an increase in funding of 600 percent. The funding will enable the center to hire analysts and social media trackers, allocate staff in more regions of the state, and assist schools with conducting the mandated safety assessments.
The Calvert County Commissioners are considering a series of proposals in response to the mass shooting at a Florida high school triggered an outcry for accountability and reform. The Commissioners plan to introduce a motion to allocate $2 million in school safety upgrades in the upcoming fiscal 2019 budget. Commissioners’ Vice President Tom Hejl also called on the local board of education to contribute matching funds.
“It sickens us to pause to acknowledge yet another senseless massacre,” Calvert County Commissioners’ President Evan Slaughenhoupt said Tuesday, in the wake of the mass school shooting on Valentine’s Day in Parkland, Fla., where 17 students and faculty where killed by a gunman.
Slaughenhoupt said if society truly wants to make a real difference, it should address what appears to be common themes surrounding the perpetrators. He then recommended everyone take the time to hear the many views and accept that overall societal and cultural improvements are needed for solutions more so than favorite single topics.
Slaughenhoupt said County Administrator Terry Shannon has already reached out to Calvert’s school system to obtain a list of security devices and changes needed at schools, as well as pricing information.
Slaughenhoupt said County Administrator Terry Shannon has reached out to the Calvert County Board of Education to obtain a list of security devices and changes needed at schools, as well as pricing information. The Commissioners previously allocated $5 million for school safety enhancements in the wake of the mass shooting at Sandy Hook Elementary School in 2012.
Because any appropriations would be used for a one-time purchase, the funds would not be calculated into the state-mandated maintenance of effort, nor would they be included in the education funding formula. Slaughenhoupt said the effort ultimately falls under the authority of the board of education, which direct responsibility for managing funds provided by the county.
Governor Hogan announced that the administration would commit an additional $125 million to accelerate and enhance safety improvements in schools, including secure doors and windows, metal detectors, security cameras, panic buttons, and other capital improvements, as well as an additional $50 million in operating funds each year for new school safety grants, which could be used for school resource officers, counselors, and additional safety technology.
The governor also announced that he will submit emergency legislation to create Maryland’s first statewide school safety standards, including required training and certification for all school resource officers and security staff. As an immediate step to activate the emergency legislation, the governor announced that he will submit a supplemental budget on Friday, March 2, that provides an additional $5 million for the Maryland Center for School Safety, an increase in funding of 600 percent.
Legislation based on the recommendations of the 21st School Facilities Commission will be introduced in the General Assembly on March 1. A summary, but not the text of the bill, is available as of this writing.
The Knott Commission legislation that many have been awaiting is almost here. HB1783 21st Century School Facilities Act, sponsored by Delegate Jones, Chair of the Capital Budget Subcommittee of the House Appropriations Committee is listed on the synopsis of bills to be introduced on March 1.
According to the summary on the General Assembly website, the bill deals with:
Altering the requirements for awarding contracts to bidders for school buildings;
requiring the Interagency Committee on School Construction to conduct a certain facility assessment;
specifying the process for the review and approval of public school construction projects;
establishing the Local Share of School Construction Costs Revolving Loan Fund to provide loans to local governments to forward fund the local share of school construction costs;
declaring the intent of the General Assembly regarding funding for school construction; etc.
Preliminary analysis of the Department of Legislative Services finds the legislation to be a “local government mandate.” In this context, that may mean that either county governments or another local entity, such as school boards, are directly affected by the legislation.
MACo has been awaiting this legislation along with other school construction stakeholders. County governments share responsibility for financing K-12 school construction with the State, whose funding depends on statutory formulas and regulations.
MACo advocates efforts to promote the smartest and most effective funding for modern schools, and urges State policymakers to retain the State’s strong commitment to this top funding priority. In addition, MACo supports reasonable school construction improvements including alternative financing, public-private partnerships, and innovative models of school construction and design.
At today’s hearing on SB 187, the Budget Reconciliation and Financing Act of 2018 (“BRFA”), Department of Legislative Services (DLS) analysts recommended striking the provision which would shift 90 percent of costs for certain State Department of Assessments and Taxation (SDAT) functions onto the counties – concurring with MACo’s suggested amendment to delete this provision from the BRFA.
The Department of Legislative Services (DLS) recommended against this proposal when it was offered in 2017. While it is true that local jurisdictions are the primary recipients of revenue based on the work of SDAT, this does not necessarily mean that it is wise to place the cost burden on those local governments. The State and its citizens benefit from the uniformity in procedures and valuations produced by SDAT as well as the unity of the appeals process. Assessors from all jurisdictions benefit from having greater access to support and other resources that may not be available to them otherwise.
As long as budget decisions for SDAT are made at the State level, it is prudent to require the State to pay a large share of these costs to maintain an incentive to make wise budget decisions. While there is no evidence that the current administration of SDAT or DBM would be less careful in their fiscal stewardship if more funding comes from local governments, there is still a risk going forward of creating a large area of expenditure in the budget that the appropriators do not have to fund. DLS recommends that the current 50-50 cost share for assessment expenses be maintained and that the provision increasing the local cost share to 90% be stricken from the BRFA of 2018.
MACo President Jerry Walker (Council Vice Chair, Anne Arundel County) testified:
This not only imposes a $20 million cost burden onto Maryland counties. It also threatens the objectivity and transparency of a good government system that has served our state well for decades. It’s important – and unique to Maryland – to have property assessment functions managed and funded by a jurisdiction that does not directly, meaningfully benefit from the size of those assessments.
It keeps the fox out of the henhouse.
By having counties – the biggest beneficiary of those assessments – fund their work, it places that objectivity into question.
MACo Legislative Committee Member Michael Mallinoff, Charles County Administrator, testified:
I cannot do my job to make sure our taxpayer dollars serve them effectively if my county doesn’t have any oversight for the programs they pay for. Shifting the costs for SDAT onto the counties would eliminate any incentive for the State Administration to make wise budget and management decisions.
Regardless of what decisions they make or how much they spend, they will always receive a blank check from our constituents. This is not a move in the direction of good government, transparency, or accountability.
The funding comes primarily from county governments and the State, with limited funding from the federal government and other sources.
As described by the Department of Legislative Services,
Public schools in Maryland receive about $15,467 in total funding for each pupil in fiscal 2018. Worcester County has the highest per pupil revenues at $18,312, while Somerset County has the second highest at $17,945. Baltimore City has the third highest at $17,211. Talbot County has the lowest per pupil revenues at $13,414.
Ten counties are required to escalate their education spending beyond what they provided in years past based on a formula set in state law since 2012. Seven of the counties caught in the mandate also have the lowest wealth per pupil in the State.
The draft calculations show that multiple counties are again caught in a relatively new provision of law called the maintenance of effort escalator. Nine counties were in the same position last year.
This year, Dorchester and Somerset counties will be required to increase their education budgets. Last year they did not have to because their local wealth per pupil was decreasing.
Counties required to permanently increase their per-pupil payments are those that fall below a statewide moving average of education contributions as compared with local wealth. From year-to-year, some of the state’s least wealthy counties have fallen into this category.
Here is a ranking by the Department of Legislative Services of the counties in Maryland with the least wealth per student. The seven lowest ranking counties are also caught in the escalator formula this year.
As shown in the chart below, 10 counties will be required to increase their education pending by the amount of the increase in their wealth per pupil (WPP), up to a maximum of 1.5%. Those counties where wealth per pupil is falling are not required to increase their payments this year, though they may be required to do so next year if their local wealth per pupil increases.
Maryland’s U.S. Representative Dutch Ruppersberger, along with U.S. Representative Randy Hultgren, an Illinois Republican, have sponsored a bill to bring back the federal tax break on advance refunding bonds. The federal tax exemption for the refinancing tool was removed in the federal tax reform bill.
Advance refunding bonds allow counties to refinance tax-exempt municipal bonds to save taxpayer money on outstanding debt. Previously, counties could issue one advance refunding bond per municipal bond – saving taxpayers billions nationwide on public infrastructure. That ended December 31, 2017.
I’m proud to lead this bipartisan effort on behalf of local governments in Maryland who rely on this tool to finance projects that benefit everyone. We need to do what we can to help local governments create jobs while building roads, schools, hospitals, fire and police stations. When counties can issue an advance refunding bond, it saves taxpayers billions nationwide – and an average of nearly $37 million annually here in Maryland. This can translate into lower property taxes.
Federal tax reform could negatively affect the market for municipal bonds, increasing the cost of infrastructure projects for state and county governments.
Budget analyses prepared by the Department of Legislative Services for the General Assembly contain a wealth of information.
In this week’s presentation of the Operating Budget Analysis of Public Debt to the Budget and Taxation Committee, the Department describes how federal tax reform could decrease demand for municipal bonds with carry-over effects on the cost of debt for state and county governments.
The State of Maryland and counties use municipal bonds to finance a variety of public works projects, including transportation infrastructure.
From the Analysis’s Effect of Reducing Taxes on the State and Municipal Bond Market:
Most State GO bonds issued by the State are tax-exempt bonds. The purchaser of these bonds does not have to pay federal taxes on the bonds’ interest earnings. This makes these bonds especially attractive to individuals in high income tax brackets and corporations. This reduced the top bracket on individual taxes from 39.6% to 37% through calendar 2025 and reduces the top corporate income tax rate from 39% to 21% permanently. Lower tax rates reduce the amount of tax avoided by investing in tax-exempt bonds.
The Department describes the basis for this change:
Financial institutions, like banks and insurance companies, are estimated to own 25% of tax-exempt bonds. These institutions would require a higher interest rate to purchase tax-exempt bonds.
Some reports note that owners of pass-through entities, such as partnerships and Subchapter S Corporations, may also be less likely to purchase tax-exempt bonds, thereby dampening the demand and driving up prices.
DLS estimates the effect of these additional costs based on findings of a research firm’s data from the federal tax reform debates. DLS found that the State’s premium would have been reduced from $94 million to between $56 million and $69 million in its most recent bond sale in August 2017 because of higher rates.