Counties Receive Legal Issues Update at 2017 Winter #MACoCon

County officials received updates on pending state and federal legal issues on December 6 at the 2017 MACo Winter Conference. The panel was called “From the Bench: A Federal and State Legal Update” and was moderated by Maryland Delegate William Folden.

National Association of Counties (NACo) Associate Legislative Director Jack Peterson discussed several cases before the United States Supreme Court that would address: (1) whether banning political apparel at polling places violates the first amendment ; (2) how and when states can remove individuals from their voter rolls; (3) whether comments made at a public meeting must relate to the topic under consideration; and (4) whether states and local governments can collect sales tax from online retailers regardless of whether they have a physical presence within their jurisdiction.

From left to right: Jack Peterson, Lisa Oschenhirt, Timothy Baker

Peterson discussed several regulatory issues, including the recent definitional change to the federal “Waters of the United States” rule. Peterson noted that the issue would likely remain a top legislative priority for NACo. Peterson also discussed NACo’s efforts to improve the “integrated planning” option under the Clean Water Act that in theory simplifies how local governments can meet federal and state mandates for water quality.

Finally, Peterson discussed several pending federal legislative issues, including extension of the current federal budget so that the government does not run out of money and current tax reform efforts. On tax reform, key local issues included losing the deduction for local income taxes and some property taxes and the removal of the ability to refinance local municipal bonds. Peterson stated that tax reform would probably be done by the end of the year.

AquaLaw Attorney Oschenhirt discussed the permitting process and current litigation for Maryland counties subject to a Phase I or Phase II Municipal Separate Storm Sewer System (MS4) permit. Oschenhirt stated that Phase I controversies included: (1) whether the  permit applied across the entire county or just to those areas of a county that have stormwater systems; (2) whether the proposed permits go beyond the “maximum extent practicable” standard; and (3) whether nutrient credit trading will be included or not.

Delegate William Folden

Oschenhirt also noted that MACo, the Maryland Municipal League, and the Maryland Municipal Stormwater Association submitted joint comments on the new Phase II MS4 permit proposed by the Maryland Department of the Environment (MDE). The comments raised concerns over who should be included in the permit, the geographic scope of the permit, the 20% treatment retrofit burden, and the lack of nutrient trading authority.

Oschenhirt also touched on the pending regulations for nutrient trading, staffing and program funding issues within the United States Environmental Protection Agency, the Chesapeake Bay Total Maximum Daily Load Mid-Point Assessment, tax sales, and state legislation regarding non-flushable wipes.

Maryland State Archivist and Commissioner of Land Patents Timothy Baker highlighted an optional program that is being set up by the Maryland State Archives to encourage county governments to appoint a records officer. The records officer would liaison with State Archives regarding document retention policies and infrastructure.

Senate Continues Tax Reform Tinkering, Vote Expected Friday

On Thursday, the Senate tax reform proposal hit a procedural snag on the chamber floor, delaying action on its final floor vote. The vote is expected to take place on Friday. However, as CNN reports:

Even Republican senators remained unclear about the future of their bill. While most were optimistic the bill would still pass, members acknowledged the uncertainty, joking that they still weren’t set on travel plans to head home for the weekend.

In an effort to assuage Senator Bob Corker’s concerns that the bill would increase the country’s deficit, Senate leadership proposed including a “trigger” in the bill which would automatically increase taxes if the bill failed to generate the economic growth anticipated. However, Thursday evening, the Senate parliamentarian indicated that the proposal violated certain rules and could not be included in the bill as it was. The Senate voted not to recommit the bill to the Finance Committee, but the trigger concept was removed from consideration, placing Senator Corker’s favorable vote in question.

The Senate can afford to lose Senator Corker’s vote – the bill can still pass the Senate even if two Republicans vote against it. It is unclear, however, whether the concern over the deficit will compromise other Republican votes.

Concerns over the costs of the tax cuts further piqued as a new analysis by the nonpartisan Joint Committee on Taxation released Thursday revealed that the tax package would generate significant economic growth, but add $1 trillion to the budget deficit.

From NACo’s Legislative Update from Thursday evening:

The [House and Senate tax reform proposal] versions share broad similarities: both reduce individual and corporate tax rates, revamp the international tax code and eliminate deductions throughout the tax code. Both bills also add between $1.4 and $1.5 trillion to the U.S. deficit, which Republican leadership insists will be offset by economic growth created by the bill and through entitlement reform next year. There are also difference between the bills: the Senate bill sunsets the individual rate cuts, delays implementation of the lower corporate tax rate and has a larger child tax credit.

Following Senate passage, the two chambers will either enter negotiations to address differences between the two packages, or the House will vote on the final Senate package. Final votes could happen as soon as December 6 or 7.

Although negotiations continue, several county priorities are impacted by both bills:

State and local tax (SALT) deduction: The SALT deduction has existed since the federal tax code was founded in 1913, and is a vital tool protecting state and local tax autonomy.

In the House, H.R. 1 eliminated deductibility of state and local income and sales taxes, but retained a capped property tax deduction of up to $10,000.

In the Senate, initial drafts fully eliminated the SALT deduction. This issue remains under consideration, and the final Senate text could mirror the House bill.

Municipal bonds: Tax-exempt municipal bonds are largely unchanged in each bill. However, both bills could impact advance refunding bonds and private activity bonds.

Advance refunding bonds: Advance refunding bonds allow counties to refinance tax-exempt municipal bonds to save taxpayer money on outstanding debt. Currently, counties can issue one advance refunding bond per municipal bond, which saved local taxpayers $12 billion from 2012 to 2016. Both the House and Senate bills would eliminate advance refunding bonds, increasing infrastructure costs for local governments.

Private activity bonds (PABs): Under current law, PABs are tax-exempt and support major infrastructure projects, including hospitals, universities, seaports and airports. The House bill eliminates the tax-exempt status of PABs, while the Senate bill does not make changes to PABs.

 

 

 

 

U.S. House Oversight Committee Meets in Baltimore, Focuses on Opioids

The House Oversight and Government Reform Committee held a hearing in Baltimore about the nation’s opioid crisis, the declaration of a national emergency, and the implementation of the President’s opioid commission’s report.

As reported by The Baltimore Sun:

With little progress at stopping the epidemic, which has been tied to overprescribing of addictive painkillers, among other factors, President Donald Trump formed the Commission on Combating Drug Addiction and the Opioid Crisis. The panel, led by New Jersey Gov. Chris Christie, issued a report over the summer and a final version Nov. 1.

This was the first time the oversight committee was able to question Christie about its dozens of recommendations and next steps. Christie said the president would oversee the effort, as well as Cabinet secretaries and, on the front lines, state leaders.

The article states that Christie summarized the three major recommendations from the report as: stopping fentanyl and carfentenil; educating the medical community about the dangers of opioids; and providing more treatment.

The piece notes that while there was much consensus on the data in the report noting the scope off the nation’s opioid crisis, there were questions as to who is in charge of implementing the report’s recommendations and concerns over the lack funding.

The hearing was attended by Maryland officials including Governor Hogan and Baltimore City Mayor Pugh. Baltimore City Health Commissioner Dr. Leana Wen testified at the hearing.

Read the full article in The Baltimore Sun for more information.

Tax Reform Heads To Senate Floor

The Senate tax reform proposal cleared the Senate Budget Committee on Tuesday, after already clearing its committee of origin, the Ways & Means Committee – sending the bill to the floor.

According to The New York Times, a “flurry of last-minute deal making” ensured that the bill would receive a favorable vote out of the Budget Committee, along party lines. From that coverage:

President Trump went to Capitol Hill on Tuesday for a lunch meeting with Republican senators, where he made promises to some and admonished another.

….

Republicans emerged from the lunch increasingly optimistic about the bill’s fate and playing down the concerns that had threatened to bedevil its passage. Three key Republican holdouts, Senators Susan Collins of Maine, Bob Corker of Tennessee and Ron Johnson of Wisconsin, sounded positive about the bill on Tuesday after gaining assurances from Mr. Trump and the Republican leadership that their worries would be addressed.

Republican leaders are still trying to secure the votes they need to pass the bill on the Senate floor. The Senate plans to begin floor debate on tax reform on Wednesday. A final Senate vote could occur as early as this week, at which point the House and Senate would need to resolve the differences in the two bills.

See NACo’s chart of the differences between the two proposals here. Of major concern to Maryland counties, as well as counties throughout the country, are the elimination are the proposed eliminations of the state and local tax (SALT) deduction and advance refunding bonds. Both bills contain both provisions, although the House bill enables deductibility of property taxes of up to $10,000 per filer.

Tax Reform Provokes State To Expedite Purple Line Bond Sale

The State plans to expedite its bond sale for the Purple Line, securing a year’s worth of funding for the public-private partnership (P3) before the end of December. Why? Because the House-passed tax reform package would end private activity bonds (PABs) – the preferred tool for funding the P3.

Reports The Baltimore Sun:

The sweeping tax legislation approved by the House this month would end the so-called private activity bonds, a tool local governments have used for transportation projects, affordable housing and student loans. Supporters say the financing mechanism reduces costs, but critics view it as a subsidy to private businesses.

PABs allow tax-free borrowing by private entities for public purpose projects, like the Purple Line, private school construction, and affordable housing. They are a key tool for facilitating P3s and private investment in public services.

The Senate tax reform proposal does not call for termination of the bonds.

Learn more about how the State seeks to fund major capital transportation projects at the Winter Conference session, Workshop: An Overview of the New Transportation Scoring LawThe MACo Winter Conference will be held December 6-8, 2017 at the Hyatt Regency Chesapeake Bay Hotel in Cambridge, Maryland. This year the conference’s theme is “The Power of Partnership.”

Learn more about MACo’s 2017 Winter Conference:

Does Federal Tax Reform Kill Maryland’s “Death Tax?”

This session, the General Assembly will consider legislation to chart its own course on the “death tax.”

The U.S. House tax bill proposes eliminating the federal estate tax entirely by 2024 – and the Senate plan raises the existing threshold, so that no one pays estate tax on the first $11 million of inheritance.

Maryland generally couples its tax rules with federal policy, and specifically made its estate tax conform more closely with the federal estate tax in 2014. Under current law, no one pays federal estate tax on the first $5.5 million of inheritance (ensuring this tax already only affects significantly large estates).  Chapter 612 of 2014 made Maryland’s estate tax collection mirror the federal government’s over time. Estates worth $3 million or less pay no Maryland estate tax in calendar 2017; $4 million or less pay no Maryland estate tax in calendar 2018, and, beginning on January 1, 2019, the State exclusion equals the federal exclusion (again, pretty high already, at $5.49 million and indexed to inflation.)

Analysts estimate that the estate tax will bolster the State’s general fund with approximately $132.1 million in fiscal 2018.

Last session, Delegate Jimmy Tarlau introduced legislation to decouple Maryland’s estate tax collection process from the federal government’s. He plans to do so again this year, regardless of where Congress eventually lands on federal tax reform. His legislation would exempt the first $4 million from the Maryland estate tax, taxing estates after that threshold – providing more state general funds for public services. On his Facebook page, Delegate Tarlau indicates that the change would only impact 60 families in Maryland.

The Washington Post reports:

Under current law, Maryland — which has more millionaires per capita than any other state — is supposed to follow federal estate-tax rules beginning in 2019. The state now taxes inheritances greater than $4 million.

Tarlau estimates that raising the exemption level to $11 million could cost Maryland $50 million to $100 million a year. “We need to protect our money for programs like schools, roads, mass transit and tax relief for seniors,” he said.

 

 

Senator Cardin Holds Round Table with Maryland Business Leaders

Senator Ben Cardin discussed critical issues — taxes, healthcare, infrastructure — being debated in Congress that have are impacting Maryland’s business and residents at a round table held at the Maryland Chamber of Commerce on Friday, November 17.

Senator Cardin discusses taxes, healthcare, infrastructure, transportation priorities and more at business round table.

Senator Cardin discusses taxes, healthcare, infrastructure, transportation priorities and more at business round table.The Senator emphasized his commitment to addressing key priorities for Maryland including:

  • FBI – working on finding a path forward for moving the FBI to Prince George’s County.
  • Protecting Federal and Military Installations in Maryland – ensuring they receive the resources and support they need. There was not a round of BRAC this year but one may be coming in another year or so.
  • CSX/Howard Street Tunnel – addressing the issues with the tunnel is essential to its long-term viability and talks continue with CSX financial officers and CEOs.

Q&A with the round table participants centered a lot on their frustrations with the state of the national health care laws and rising premiums, but also involved lengthy discussions on taxes, cyber security, and small business procurement issues.

 

Auditors, Inspectors General Receiving Less Love In State Budgets

States have significantly fewer auditors and inspectors general on payrolls than before the Great Recession, reports Governing

Governing identified an aggregate decline in filled staff positions reported by the National Association of State Auditors, Comptrollers and Treasurers of 7 percent over the decade ending in fiscal 2017. Thirty of 47 agencies reported that their staff was smaller than in 2007.

Those left have seen their budgets dwindle. From their coverage:

At a time when governments are trying to get a better grip on their finances, many states have cut funds for auditing and oversight. Such positions were sometimes among the first casualties in the aftermath of the recession. “I find it interesting that there is this nationwide trend of cutting back on the independent watchdog’s budget,” says Pennsylvania Auditor General Eugene DePasquale. “I’ve yet to find a taxpayer or a legislator who doesn’t want less waste, fraud and abuse in state government.”

Closer to home, the U.S. Senate Committee on Homeland Security and Governmental Affairs just wrote WMATA General Manager Paul J. Wiedefeld a letter suggesting that “the transit agency’s inspector general lacks the necessary independence to perform its oversight duties and keep the public informed of the results,” according to The Washington PostThe Committee requests a briefing from Wiedefeld on how the authority “oversees its own overseer.”

Delegate Marc Korman from Montgomery County tweeted thoughts on funding for WMATA’s inspector general:

U.S House Passes Tax Reform Bill

On a 227-205 vote, along mostly party lines with 13 Republicans voting no, the U.S. House of Representatives has passed its version of federal tax reform. In the weeks ahead, the Senate is expected to take up it own different version, and if that passes the two chambers will be obliged to reconcile their differences into one final version.

The House bill places a new limit on the amount of state and local taxes that may be deducted by taxpayers — limiting that deduction to only property taxes, and only up to $10,000. That controversial provision has been shown by numerous analyses to cause effective tax increases on many middle class families. Maryland is expected to be among the most hard hit states by this provision, with the highest share of tax returns claiming SALT as a deduction under current law.

From coverage in The Hill:

Passage of the tax bill, which was unveiled just two weeks ago, was relatively drama-free compared to the GOP’s failed effort to repeal ObamaCare earlier this year.

The stakes are high for Republicans, who are feeling pressure to show that they can govern ahead of next year’s midterm elections. The Democratic wave in last week’s gubernatorial and state house elections in Virginia and New Jersey has only added to their anxiety.

GOP leaders are hoping to get legislation to President Trump’s desk by Christmas, an ambitious timeline given the obstacles that are mounting in the Senate.

Americans Against Double Taxation, a coalition opposing reduction/elimination of the State and Local Tax Deduction (aka SALT) offered this statement after the bill’s passage:

This is only the first step in a long process, and we will continue to fight to fully preserve SALT and stop tax increases on the middle class. The House vote eliminates the most frequently claimed deduction in the tax code for the middle class, which voters oppose by a 2-1 margin. It will lead to cuts in education, public safety and other vital state and local public services. It overturns more than 100 years of sound tax policy that protected taxpayers from double taxation, and creates a double standard by allowing corporations to claim a deduction that would no longer be available to individuals and families.

Some major elements of the House tax plan, from the Tax Foundation, include:

  • Individual Income Tax Rates and Brackets: Consolidates current seven income tax rates into four, while retaining the top marginal rate of 39.6 percent and including an income recapture provision which phases out the effect of the 12 percent bracket for high earners.
  • Standard Deduction: Increases the standard deduction to $12,200 for single filers, $18,300 for heads of household, and $24,400 for joint filers.
  • Itemized Deductions: Retains the state and local property tax deduction, capped at $10,000, while eliminating the remainder of the state and local tax deduction, except for taxes paid or accrued in carrying on a trade or business; limits the mortgage interest deduction to the first $500,000 in principle value.
  • Child and Family Tax Credits: Increases child tax credit value to $1,600, with the phaseout for joint filers beginning at $230,000, while creating a new $300 per-person family tax credit for those not eligible for the child tax credit, to expire after five years.
  • Treatment of Pass-Through Income: Caps the pass-through rate at 25 percent and adds a lower minimum rate, with anti-abuse rules.
  • Corporate Income Tax: Cuts the tax rate to 20 percent, effective tax year 2018.
  • Visit the Tax Foundation site for a more complete list of tax provisions in the passed bill.

    A summary of the proposed changes to the House plan being contemplated in the Senate as a so-called “Chairman’s Mark” is also available on the Tax Foundation website:

    Last night, Sen. Orrin Hatch (R-UT) released the “Chairman’s Mark” to the Senate’s version of the Tax Cuts and Jobs Act. This much-anticipated amendment includes a number of important changes to the tax plan, including fitting the package within the constraints imposed by the Senate’s so-called “Byrd Rule,” which places limits on what can be adopted under the reconciliation process.

    An article on the Route Fifty website discusses local governments’ efforts to understand and prepare for the potential fiscal effects of the still-unresolved tax changes:

    Forty miles west of D.C. sits Loudoun County, Virginia. Loudoun’s citizens have the highest home mortgage interest deductions of any county the country according to the Tax Foundation. Already in the fifth hour of an evening Board of Supervisors meeting on Nov. 8, the county spent 40 minutes discussing the pending House tax proposal and what it may mean for the county.

    Coupled with the potential elimination of the state and local tax deduction, the Board was concerned that the tax burden that once was deductible would quickly add up under both the House and Senate plans.

    “I’ve spend a heck of a lot of time with this tax plan and I’m telling you, for a lot of people in a typical Loudoun situation … you’re probably going to be net negative on this, even with the lower brackets,” Supervisor Matthew Letourneau said during the marathon session…

    Both MACo and NACo, among many other stakeholders, will continue to follow the developments on this landmark legislation, and its potential effects on Marylanders and local governments.

    Read previous Conduit Street coverage on federal tax reform.

    The Conduit Street Podcast Is Back!

    After a brief hiatus, the Conduit Street Podcast is back! In this episode, Kevin Kinnally and Michael Sanderson discuss new developments in state and local education funding, federal tax reform, and Maryland’s state fiscal picture.

    MACo has made the podcast available through iTunes by searching Conduit Street Podcast. You can also listen on our Conduit Street blog with a recap and link to the podcast.

    Listen here: