Debate Continues Over Frederick Hotel & Conference Center

State funding for a hotel and conference center in downtown Frederick sparked a controversial floor debate in the Maryland Senate this past session.  The state approved granting $4 million for the Downtown Frederick Hotel and Conference Center, leading to Frederick County’s own Senator Michael Hough voting “nay,” alone, on the entire capital budget.

Michael Dresser reports in today’s Baltimore Sun that the public funding for the project – $31 million in total, including state, county and city sources – still requires a number of state and local approvals, including sign-off by the State Board of Public Works. It appears the debate over the project is far from over. From the article:

State Sen. Ronald N. Young, a Frederick County Democrat, said the project is a priority for the city’s growing high-tech and biotech business sector.

“They think they can do international conferences here. They need a first-class hotel,” he said. “It’ll definitely spark other businesses in the area.”

But to others, the project is a colossal boondoggle. These opponents say it’s a textbook example of crony capitalism — a subsidy for wealthy developers. They say it would be out of scale in the historic downtown and would require the demolition of at least one historic building.

State Sen. Michael J. Hough, Frederick County’s other senator, compares the project to the Rocky Gap resort in Western Maryland and the Hyatt Regency in Cambridge — two money-losing ventures in which the state invested two decades ago.

“I’m not exactly sure why the state is still investing in hotels, given our track record,” the Republican lawmaker said. Rocky Gap lost money for years before casino gambling was permitted there under new ownership. The Cambridge resort continues to lose money, according to the Department of Legislative Services, but the state was repaid in 2006 and local officials insist it has stimulated growth in that Eastern Shore city.

A majority of the Frederick County delegation to the General Assembly opposed spending state money on the hotel project, but Young persuaded his fellow Senate Democrats to insert the expenditure in the capital budget. The Senate prevailed in negotiations with the House, and Gov. Larry Hogan did not contest the decision.

Even without most of the delegation, the project has powerful local support. The city government, led by Republican Mayor Randy McClement, is on board. The county executive, Democrat Jan Gardner, backs it. The Frederick County Chamber of Commerce and other local business groups have it on their wish lists.

“We believe it’s the next real game-changer for our community — not a boondoggle,” said John Fieseler, executive director of the Tourism Council of Frederick County. He said accommodations downtown are limited; the few bed and breakfasts are always full.

The Maryland Public Policy Institute, a nonpartisan public policy research and education organization whose mission is “to formulate and promote public policies at all levels of government based on principles of free enterprise, limited government, and civil society,” penned a not-too-positive report on the potential deal last September.

The Institute reports that the deal would distort the hospitality market in the Frederick area; raise hotel taxes on other hotels; “rewards political skill, not business acumen”; may violate the state law giving the county the authority to impose the hotel tax; provides full-service hotel benefits that jeopardize business opportunities for neighboring eating, drinking and other service establishments; and gives too much administrative authority to the county tourism council, which it reports is “a trade group comprising some 300 members engaged in visitor businesses.”

Additionally, it cites:

Heywood Sanders, a professor of public administration at the University of Texas, San Antonio who specializes in hotels and convention centers, says upscale, full-service conference center hotels almost never make financial sense in the downtown of small cities like Frederick. The extra costs involved, both in capital expenditure and operations, just aren’t justified by any extra revenue they generate. The many activities involved in a full-service hotel are also very difficult to manage, he says. However, the bigger problem for Frederick is that the hotel’s anticipated top customer, the federal government, limits “per diem” lodging rates to about $100 and mandates that they will only be paid if the lodging is at least 50 miles from employees’ workplaces. The proposed upscale hotel is aiming at $160 per night rooms, and Frederick is a scant 43 miles from the White House.

The Baltimore Sun refers to the City of Frederick’s economic development director:

Richard Griffin, economic development director for the city, said the opposition to the hotel, “although very expressive,” is small. He said the project is expected to bring 280 jobs and have $26 million in annual economic impact.

Griffin said public-private partnerships are typical for such projects. He pointed to a Marriott hotel-conference center built in North Bethesda with state help and regarded as a success.

“Everyone’s waiting for this project to get going so they can jump in and begin the process of the full realization of the east side of downtown,” he said.

State/Local Deductibility Among Tricky Issues in Federal Tax Reform Debate

Talks of renewed efforts to “jumpstart” proposed federal tax reforms have emerged from Washington, with House Speaker Paul Ryan encouraging efforts to develop a plan for House passage — likely as a part of budget reconciliation, meaning a lower vote threshold needed in the Senate.

From coverage in the Wall Street Journal, a political consensus – even among the majority Republicans – has been elusive in part due to the tentative proposal to eliminate tax deductibility of state and local taxes on federal returns. From the Journal coverage:

• Intra-Republican disputes threaten the GOP effort with every trade-off. Just this week, seven House Republicans from New York and New Jersey signed a letter asking the administration—and by extension, the speaker—to reconsider a plan to repeal the deduction for state and local taxes.

• To even get to tax policy, Republicans will have to pass a budget that allows them to use reconciliation, the procedural tool that enables a simple majority vote in the Senate. That will require bridging gaps between Republicans who emphasize spending cuts and those who want to spend more on the military.

For more on the state and local tax deduction, see NACo’s release: State, Local Governments Urge Congress to Preserve State and Local Tax Deduction and Tax-Exempt Municipal Bonds in Tax Reform Efforts

Revenues Fall Short In Most States, Report Finds

Maryland is not the only state experiencing its tax revenue growing more sluggishly than expected. According to a new study by the National Association of State Budget Officers (NASBO), “Spring 2017 Fiscal Survey of States,” fiscal year 2017 general fund revenues in 33 states were coming in below forecasted levels – the highest number of states since 2010, when 36 states had revenues fall short of projections. In comparison, in 2015, only seven states saw revenues come in short of expectations. (Fiscal years in all but four states end on June 30, like Maryland’s.)

From Route Fifty:

The survey refers to a number of factors that could be contributing to lackluster state revenues. One is that high earners could be shifting income into the year ahead, anticipating that federal tax cuts will be enacted under President Trump and the Republican-controlled Congress.

Other factors include: declines in oil and natural gas prices and coal production that have affected states with economies that depend on these commodities; greater amounts of economic activity falling outside of the sales tax base of many states; and low inflation.

The report finds that at least 23 states (including Maryland) have made mid-year budget cuts in fiscal 2017,  totaling $4.9 billion.

States are preparing their fiscal 2018 budgets quite conservatively in response – factoring in not only slow revenue growth, but also limited budget flexibility and substantial uncertainty about decisions to be made at the federal level.

Budget proposals governors put forward for fiscal 2018 would increase general fund spending by just one percent compared to estimated levels for this year. That would mark the lowest nominal growth rate in spending since 2010, the NASBO report says.

Maryland’s fiscal 2018 budget, as passed by the General Assembly, increases general fund spending by only 0.5 percent.

 

Article Explores Rural Elected Officials Priorities, Perspectives

A piece in the Capital News Service shares some perspectives from rural Maryland on the Governor’s work.

barr hogan
Former MACo President Washington County Commissioner John Barr with the Governor at MACo’s Winter Conference.

As described by the Capital News Service,

Hogan’s surprise election in 2014 happened in part because of an unexpected surge of rural voters. . . And while Hogan has paid more attention to rural Marylanders than his predecessor, some politicians in rural areas say he has struggled to deliver what they want most — more money for infrastructure and less regulation from Annapolis.

Priorities

Rural priorities include returning to shared transportation revenues for local road maintenance and improvements and repealing septic and sprinkler regulations that increase residential development costs.

This General Assembly session, several of these rural priorities evidenced the continued political split in Annapolis. The Administration’s budget proposal to begin an incremental return of highway user revenues was scaled back by the legislature, and no efforts to scale back or offset the sprinkler mandate passed. However, through its executive branch powers, last year the Administration repealed septic regulations affecting new development outside the critical area.

The article gives context to the highway user revenue issue, stating,

Cuts to the state’s highway user funds were made to every county in 2009. For most counties, those funds would never return.

“In 2008, we got $4 million in highway user funds,” said [County Commissioner Bill] Valentine. “The last couple of years, we got $400,000. There are 526 miles of road in Allegany County.”

 

The article explores political dynamics in Annapolis and describes the General Assembly’s role in decisions affecting rural priorities. This discussion includes a chart that shows the amount of state aid provided as compared with the amount of non-federal taxes paid.

Perspective

The article also notes that aside from whether there is progress on rural priorities, rural Maryland elected officials often recount appreciation for the Hogan Administration, stating,

Almost universally in rural areas, local politicians say the Hogan administration has made a priority of being responsive. When asked what the governor has specifically done for them, simply listening is almost always the first thing mentioned.

For more, see In Maryland politics, the war on rural is dead — long live the war on rural? from the Capital News Service.

Quick County Update on Federal Issues

On this morning’s call of counties from the northeastern United States, National Association of Counties Legislative Director Deborah Cox and Health Policy Director Brian Bowden provided the following updates:

The President’s Fiscal Year 2018 Budget

The President’s full budget request for Fiscal Year 2018 (October 1, 2017-September 30, 2018) came out yesterday. It is a couple of thousand pages, and NACo is reviewing it for a full analysis to be released later this week. Similar to what was seen in the initial proposal, however, there are many programs cut that would negatively affect county governments. These range from rural development grant cuts to the elimination of Community Development Block Grants for urban areas, and others [for more see Trump’s Proposed Budget Eliminates 66 Programs, Including “CDBG” and NACo’s Statement on the President’s Proposed FY 2018 Budget].

NACo’s Deborah Cox stressed that this is just a budget proposal. The next step is that the House and Senate determine the total amount of funding in the budget before moving on to its composition. For more information, see this Guide to the Federal Budget Process.

Healthcare Reform Efforts: All Eyes on the Senate

National Association of Counties Health Policy Director Brian Bowden updates that the House passed the American Healthcare Act. Under the Act, states may waive out of several of the ACA requirements. Also, a late-coming amendment to the bill created a high-risk pool modification to accommodate pre-existing condition concerns. In his update, Bowden noted the emotional appeal by Jimmy Kimmel on pre-existing conditions prior to the legislation’s passage.

At this point, all eyes turn to the Senate, where the bill faces stricter procedural rules and different policy dynamics—and therefore is expected to be changed significantly. The Congressional Budget Office is expected to release a score on the House-passed measure today, allowing the Senate to officially move forward.

The Latest on Tax Reform

The house is completely focused on tax reform now that they have passed their healthcare legislation. Tax reform has been a top priority of Speaker Ryan.

NACo provided context for tax reform and the dramatic effect it could have on county fiscal health: while many of the issues that NACo tracks are in the billions as far as potential effects on county governments, the effects of tax reform could be in the trillions of dollars. The municipal bond tax deduction and state and local tax deductions are longstanding provisions of the tax code that have been a part of the partnership between the federal government and local governments for years. But, they are again part of the tax reform discussions going on in the House now.

Over the next few days, NACo will release more detailed analysis of the President’s proposed budget and its effect on counties. Stay tuned to Conduit Street for more.

Trump’s Proposed Budget Eliminates 66 Programs, Including “CDBG”

cdbgAs reported by The Hill, the Trump budget proposal would end many federal programs, including the Housing and Urban Development Department’s Community Development Blog Grants, also known as “CDBG.”

The CDBG cut is one of the program cuts making up $4.123 billion in reductions to the US Department of Housing and Urban Development (HUD), according to The Hill. The whole fiscal 2018 budget proposal would eliminate 66 programs for a savings of $26.7 billion, according to The Hill.

As described by MACo’s Associate Director, Natasha Mehu,

Counties in Maryland are eligible for CDBG grants either through the Maryland Department of Housing and Community Development, which administers the grants to non-entitlement counties, or directly through HUD for entitlement counties (Anne Arundel, Baltimore, Harford, Howard, Montgomery, and Prince George’s). All would be impacted by cuts.

For a list of all of the grants affected, see Here are the 66 programs eliminated in Trump’s budget from The Hill.

Get the Latest on Federal Tax Reform and What It Means for Counties

 

naco logoThe National Association of Counties’ Northeast Regional Conference Call this month will include an update on the federal budget, healthcare, and tax reform debates and how they could affect county governments. 

All representatives of Maryland counties are welcome to join the call.

NACo Northeast Regional Conference Call

Wednesday, May 24, 2017

8:00AM EST

Dial-In:1-719-359-9722

Dial-In(toll free): 1-888-757-2790

Guest Passcode: 299194

 

AGENDA

Welcome and Introductions

  • Hon. Christian Leinbach – Chairman, Berks County Commissioners (PA) / NACo NE US Representative
  • Roll Call by State – Each state will be called and Elected County Officials will be given the opportunity to state their name and county.
    • DC
    • DE
    • ME
    • MA
    • MD
    • NH
    • NJ
    • NY
    • PA
    • WV

 General Legislative/NACo Update

  • Deborah Cox – NACo Legislative Director
    • FY 2017 omnibus and what it means for counties
    • Health care reform efforts: all eyes on the Senate
    • The latest on Tax Reform

Upcoming NACo Webinars:

NACo Conferences:

Contact Robin Clark Eilenberg at MACo for more information about the monthly NACo calls.

Pew: Maryland Leader In Evaluating Tax Incentives

The Pew Charitable Trusts has named Maryland one of ten leading states in tax incentive evaluation, with plans for review of the effectiveness of its incentives, experience in producing quality evaluations, and process for informing policy choices. Pew lauds Maryland in its latest report, How States Are Improving Tax Incentives for Jobs and Growth: A national assessment of evaluation practices, issued this month.

From the report:

• Maryland is leading other states because it has a well-designed plan to regularly evaluate tax incentives, experience in producing quality evaluations that rigorously measure economic impact, and a process for informing policy choices.

• Lawmakers have used the evaluations to make improvement to incentives, including a tax credit for rehabilitating historic buildings.

• Since new incentives are not automatically added to Maryland’s review schedule, lawmakers will need to update the schedule periodically to ensure that it remains comprehensive.

Maryland first required tax credit evaluations under the Tax Credit Evaluation Act of 2012, which established a legislative process for evaluating certain credits. The Department of Legislative Services (DLS) is required to publish a report evaluating the tax credit. The report submitted by DLS must discuss (1) the purpose for which the tax credit was established; (2) whether the original intent of the tax credit is still appropriate; (3) whether the tax credit is meeting its objectives; (4) whether the goals of the tax credit could be more effectively carried out by other means; and (5) the cost of the tax credit to the State and local governments. The evaluation committee must hold a public hearing on the evaluation report, and is required to submit a report to the General Assembly that states whether or not the tax credit should be continued, with or without changes, or terminated.

Rainy Day Funds: What Counts As Rain?

When it comes to tapping into rainy day funds, how much rain makes a day rainy? What justifies tapping into reserves? That’s the question the Pew Charitable Trusts seeks to address in its latest report, When to Use State Rainy Day Funds.

Despite most states experiencing strong revenue growth from fiscal 2003 to 2007, 22 states made withdrawals from their reserves at least once. Then when the Great Recession took a brutal toll on state coffers from 2008 to 2010, eight states did not tap into the rainy day funds at all.

Flawed withdrawal policies may be to blame, Pew opines. Pew examined 47 states’ withdrawal policies, and found that a significant number of states have unclear policies for when to make withdrawals. Six states, including Maryland, have no policies governing when to make withdrawals at all. Most states – 29 – do not have policies which allow for consideration of revenue or economic fluctuations when tapping into their rainy day funds.

At any given time, a number of considerations may factor into policy makers’ decisions over whether to tap into rainy day funds. The report cites Maryland lawmakers’ fear of a credit downgrade:

Lawmakers often cite their state’s creditworthiness as a reason for not withdrawing from their budget stabilization funds. During the Great Recession, Maryland’s stabilization fund stayed at about 5 percent of general fund revenue. As former Maryland Senator Barbara Hoffman noted, the state uses its Revenue Stabilization Account as more of a fail-safe, in part out of a desire to maintain its credit rating. “We don’t spend it, and that’s one of the reasons we have a triple-A bond rating in this state.”

In Maryland, the Governor may transfer funds from the Revenue Stabilization Account to the general fund “as necessary to support the operation of State government on a temporary basis,” so long as the General Assembly blesses the transfer, and it does not cause the account balance to drop below 5.0 percent of the estimated general fund revenues for that fiscal year.

Rather than focusing on withdrawal policies, Maryland has taken steps this past session to address budgeting around economic volatility by saving more conservatively. On March 31, Governor Larry Hogan signed into law House Bill 503, which codifies an approach recommended by The Department of Budget and Management, the Comptroller, and the Department of Legislative Services in their November 2016 report, Report on Revenue Volatility and Approaches to Reduce Risk to the State Budget.

The new law requires that the Revenue Stabilization Account or the newly established Fiscal Responsibility Fund receive a share of nonwithholding general funds above a cap that is based on the 10-year average nonwithholding revenues’ share of total general funds. Revenues from the Fiscal Responsibility Fund may only be appropriated in the second following fiscal year to PAYGO capital projects for public school construction, public school capital improvement projects, capital projects at public community colleges, and capital projects at four-year public institutions of higher education. The bill also specifies it is the State’s goal that 10.0 percent of estimated general fund revenues in each fiscal year be retained in the Revenue Stabilization Account.

Helpful Links

Pew: When to Use State Rainy Day Funds

Link to the Pew report

Report on Revenue Volatility and Approaches to Reduce Risk to the State Budget

Prior Conduit Street coverage on Maryland’s efforts to address economic volatility

House Bill 503: State Budget – Appropriations – Income Tax Revenue Estimate Cap and Revenue Stabilization Account

DLS 90 Day Report: Education Funding

The Department of Legislative Services (DLS) has released its annual summary of the legislative session, The 90 Day Report – A Review of the 2017 Legislative SessionThe report is divided into 12 parts, each dealing with a major policy area. It also includes information relating to the final operating and capital budgets, including aid to local governments – and a breakdown of aid to each county. 

County level detail of state aid is available here.

DLS lists “Direct Aid” to counties in two groups: Primary and Secondary Education, and all other aid programs. A full breakdown of all programs is available here: Total State Aid to Local Governments (Exhibit A-3.5)

This blog post directs readers to sections of the 90 Day Report which describe the education programs.

From Part L, Education of the Report:

State aid for primary and secondary education increases by $61.1 million in fiscal 2018 to $6.4 billion, 1.0 % more than fiscal 2017 aid. State aid provided directly to the local boards of education increases by $113.6 million, or 2.1%, while retirement aid decreases by $52.5 million, or 6.7%. Fiscal 2017 to 2018 changes in major State education aid programs are shown in Exhibit L-1.

The foundation program totals $3.0 billion in fiscal 2018, an increase of $43.3 million over fiscal 2017, or 1.5%. This increase is attributable to enrollment growth of 0.8% (6,658 full-time equivalent (FTE) students) and a 0.7% increase in the per pupil foundation amount due to inflation. The increase in the per pupil foundation amount brought it from $6,964 per pupil in fiscal 2017 to $7,012 per pupil in fiscal 2018.

Aside from the foundation program, the largest single increase is $21.7 million for Limited English Proficiency.

The County level detail begins with a list of aid provided through primary and secondary education programs. The Primary and Secondary Education section of Part A provides detailed descriptions, history and funding amounts for public school programs, of which there are many:

  • Foundation Program ($3.0 billion),
  • Net Taxable Income Grants ($49.2 million),
  • Declining Enrollment and Tax Increment Financing Grants ($17.6 million),
  • Geographic Cost of Education Index ($139.1 million),
  • Compensatory Education Program ($1.3 billion),
  • public special education programs ($284.9 million),
  • funding for nonpublic special education placements ($123.6 million),
  • regular student transportation services ($250.6 million),
  • special student transportation services ($25.7 million),
  • limited English proficiency grants ($248.7 million),
  • Bridge to Excellence in Public Schools Act Guaranteed Tax Base Program ($50.3 million),
  • Public School Opportunities Enhancement Program ($2.5 million),*
  • Robotics Grant Program ($250,000),*
  • Next Generation Scholars of Maryland Program ($4.7 million),*
  • Early College Innovative Fund ($300,000),*
  • Aging Schools Program ($6.1 million),
  • Judy Hoyer and Head Start Programs ($12.4 million),
  • Infants and Toddlers Program ($10.4 million),
  • Teacher Induction, Retention, and Advancement Pilot Program ($2.1 million),
  • Governor’s Teacher Excellence Award Program ($96,000),
  • Food and Nutrition Services ($11.2 million),
  • Adult Education Programs ($8 million),
  • School-based Health Centers ($2.6 million),
  • Healthy Families/Home Visits Program ($4.6 million),
  • Prekindergarten funding ($8.0 million),
  • Prekindergarten supplemental grants ($10.9 million), and
  • Teachers’ retirement payments ($734.5 million).

*Governor’s proposed budget did not fund these programs, but the General Assembly restored them.

Governor Hogan provided a supplemental budget which provided additional education aid to school systems experiencing declining enrollment, and those providing prekindergarten. From page A-22:

On March 27, 2017, Governor Hogan provided a supplemental budget that included $28.2 million in education aid to provide grants to certain [local education agencies, or] LEAs, all of which was contingent on the enactment of House Bill 684. As directed under the bill, this funding is provided in two parts: (1) enrollment based supplemental grants and (2) prekindergarten supplemental grants.

An LEA is eligible for an enrollment based supplemental grant if it has declining enrollment, as determined by the LEA’s most recent prior three-year moving average FTE exceeding its FTE in the previous school year. In fiscal 2018, the eligible LEAs include Baltimore City and Allegany, Calvert, Carroll, Cecil, Garrett, Harford, Kent, Queen Anne’s, and Talbot counties. The supplemental budget provides $17.2 million for these grants.

An LEA is eligible for a prekindergarten supplemental grant based on it offering a full-day public prekindergarten program for all four-year olds whose parents enroll them. In fiscal 2018, the eligible LEAs include Baltimore City and Garrett, Kent, and Somerset counties. The supplemental budget includes $10.9 million for these grants.

From page A-79 on Teacher Retirement:

House Bill 152 (Ch. 23), the Budget Reconciliation and Financing Act (BRFA) of 2017, repeals the requirement, for fiscal 2018 only, that the Governor include an appropriation to the State Retirement and Pension System trust fund equal to one-half of the amount by which the unappropriated general fund surplus exceeds $10.0 million in the second preceding fiscal year, up to a maximum of $50.0 million. State retirement aid to local jurisdictions is reduced by a total of $37.7 million in fiscal 2018: $35.6 million for public schools; $1.5 million for community colleges; and $0.6 million for libraries. These differences are shown by county in Exhibit A-3.2.

Also, House Bill 1109 (Ch. 5) relieves county boards of education from their fiscal 2017 obligation to pay $19.7 million of their share of the employer normal cost for their employees who are members of the Teachers’ Retirement System or Teachers’ Pension System. This measure, which is accounted for in the budget, effectively increases State retirement aid by $19.7 million in fiscal 2017.

 

Deeper in the Report, DLS further discusses House Bill 1109Exhibit C-1 shows the amount that each local school system is relieved of paying in fiscal 2017.

 

More information on Education funding is available in Part L, Education.