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

Hogan Proposes Supplemental Budget: Funds Included For Police, Colleges

Today Governor Hogan will provide more details about his first supplemental budget of the session, to be released later today. It reportedly includes additional funding for police, colleges and economic development. Two million will go to the Baltimore Police Department to support compliance with its consent decree with the U.S. Department of Justice. Ten million will go toward addressing opioid addiction – the first installment of his plan, announced about a month ago, to spend $50 million on the crisis. He intends to spread the $50 million over five years. The supplemental budget also includes extra money for higher education and economic development.

Disappointing some, it includes nothing for the Baltimore City School System. From The Baltimore Sun

“There are funds available in the budget for other priorities,” Hogan spokesman Doug Mayer said Thursday.

Nevertheless, the head of the House of Delegates budget committee expressed surprise and disappointment that the new spending plan didn’t address the city’s plight or the budget woes in nine counties where student enrollment — and therefore state funding — also has declined in the past year.

“We’re talking about the quality of education we can be and should be committed to in 10 districts,” said Del. Maggie McIntosh, the Baltimore Democrat who heads the Appropriations Committee.

Supplemental budgets, which address spending needs that might not have been apparent at the time of the state budget’s release in January, are also a tool used by governors in their annual tug-of-war with lawmakers over budget priorities. By either including or withholding funds, a chief executive can bargain for funding priorities that the legislature may not share.

McIntosh said she made concessions to the administration on several issues and thought the funds would be coming.

 

 

Income Tax “Mixed Bag” – Some Bills Moving, Some Not

A number of bills are moving this session which will affect local income tax revenues to varying degrees. All of these bills are subtraction modification bills – meaning that they create additional deductions in the taxable income base. County’s local income tax is based on total income, after deductions are made at both the Federal and state levels. If all of these bills pass, local income tax revenues decrease by about $6 million in fiscal 2018.

Overall, MACo has urged the general Assembly not to enact tax changes that have substantial carryover effect on county revenues. State tax credits, for example, can effect much the same outcome as a subtraction modification, without implicitly mandating a loss in county revenues. Alternatively, a range of local option tax benefits against the property tax or other local revenues can reach a similar policy goal without the state decision trumping local input.

HB 100/SB 597 – Income Tax Subtraction Modification – Retirement Income of Law Enforcement, Fire, Rescue, and Emergency Services Personnel provides for a subtraction modification for the first $15,000 of retirement income for individuals at least 55 years of age who are retired law enforcement officers or fire, rescue, or emergency services personnel of the United States, the State of Maryland, or local government. MAC opposed this bill because it would cause local revenues to decrease by $2.5 million in FY 2018 and by $2.8 million in FY 2022. HB 100 passed out of the House unanimously and will be heard in the Senate Budget and Taxation Committee on March 21 at 1pm. The crossfile, SB 597, has passed second reading in the Senate.

MACo did not take positions on the following subtraction modification bills which have gained traction, generally for policy reasons or because the fiscal impacts on local income tax revenues are relatively negligible.

HB 3 – Income Tax – Subtraction Modification – Olympic, Paralympic, Special Olympic, and Deaflympic Games Medals and Prizes   exempts from the State and local income tax the value of specified medals and prize money or honoraria received by an individual who competes in the Olympic, Paralympic, Special Olympic, or the Deaflympic Games. The bill passed out of the House and will be heard in the Senate Budget & Taxation Committee on March 22 at 1pm.

HB 83 –   Income Tax – Subtraction Modification – Discharged Student Loan Debt expands the existing subtraction modification for income resulting from the discharge of student loan debt by eliminating the requirement that only student loans that are discharged due to total and permanent disability or death qualify for the exclusion. This subtraction modification only really applies to student loan debt which is canceled in a small number of situations, such as bankruptcy or compliance with certain student loan forgiveness programs.  This has passed second reading in the House.

HB 822 – Income Tax – Subtraction Modification – Police Auxiliaries and Reserve Volunteers increases to $5,000 the value of the income tax subtraction modification for
qualifying police auxiliaries or reserve volunteers. The bill passed out of the House unanimously and will cross over to the Senate Budget & Taxation Committee.

SB 295 – Income Tax – Subtraction Modification – Military Retirement Income – Individuals at Least 65 Years Old expands the existing military retirement income tax subtraction modification by increasing from $10,000 to $15,000 the maximum amount of retirement income that can be excluded from Maryland adjusted gross income for purposes of calculating Maryland income tax liability. In order to qualify for the increased subtraction modification, the individual must be at least 65 years old. The Senate has passed the bill on second reader.

SB 367 – Income Tax – Subtraction Modification – Mortgage Forgiveness Debt Relief continues an existing subtraction modification for forgiven mortgage debt resulting from certain foreclosure proceedings. The maximum amount of the subtraction may not exceed $100,000 ($200,000 if married filing jointly). The bill passed the Senate unanimously and will be heard in the House Ways & Means Committee on March 22 at 1pm.

The following subtraction modification bills have not seen any movement at this time:

HB 0033 – Income Tax – Subtraction Modification – Retirement Account Withdrawals for Higher Education Tuition

SB 238/HB 0195 – Income Tax Subtraction Modification – Retirement Income (Fairness in Taxation for Retirees Act)

HB 0196 – Income Tax – Subtraction Modification – Interest Paid on Student Loans

HB 0230 – Income Tax – Subtraction Modification – First-Time Homebuyer Savings Accounts

SB 3/HB 544 – Income Tax – Subtraction Modification – Military Retirement Income

HB 550 – Income Tax – Subtraction Modification – Military Retirement Income

HB 1033 – Income Tax – Subtraction Modification – Discharged Student Loan Debt

SB 254/HB 1174 – Income Tax – Subtraction Modification – Perpetual Conservation Easements

HB 1235 -Income Tax – Subtraction Modification – Qualified Maryland Toll Expenses

HB 1244 – Income Tax – Subtraction Modification – Military Retirement Income – Individuals Under the Age of 65 Years

SB 0249 -Income Tax – Subtraction Modification – Donation of Rented Equipment

Governor’s Bills:

SB 320/HB 399 – Student Debt Relief Act of 2017

SB 321/HB 375 – Income Tax – Subtraction Modification – Military Retirement Income

Other Helpful Links

All 2017 bills impacting local tax revenues and status

President Trump’s Budget Proposal Carries Big MD Effects

President Trump’s proposed federal budget has triggered a wide range of reactions, including some local concerns about effects on the Maryland workforce, environment, and numerous other areas. While federal actions are far from certain, this debate does carry over into the state political arena in several ways.

A Baltimore Sun article covers the story, with significant focus on federal funds for the Chesapeake Bay cleanup efforts, but touches on the wider picture as well:

In Maryland, a state where the economy is closely tied to federal spending, the $1.15 trillion budget could put thousands of civilian government employees out of work but also boost defense activity in the state. Urban development and road projects in Baltimore could be put on hold while additional money may be set aside for addiction treatment.

The proposal, which faces opposition in Congress, underscores the administration’s desire to limit the federal government’s reach into housing, the environment and safety-net programs, while vastly increasing investments in the military and homeland security — all of which reflect promises Trump made during his campaign.

The federal budget process is dramatically different than that in Maryland State government. While the state and many larger counties use what is often referenced as an “Executive Budget” system, where the General Assembly may cut but not add funding, the federal government’s budget process is more legislatively-driven. The President’s proposals represent the Administration’s priorities, but are not materially binding on the Congress. Debate on the budget plan, and the multiple appropriations bills that represent the federal budget, will extend for months.

Wide coverage of multiple news sources discussing the Maryland and political effects of the proposed budget can be found on the Maryland Reporter site, which offers a daily harvest of Maryland news and political coverage.

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

Senate Subcommittee Pares Back Highway User Revenues

The Senate Budget and Taxation Public Safety, Transportation and Environment Subcommittee voted to reduce the Governor’s proposal to provide transportation capital grants to counties and Baltimore City. Counties’ share was reduced from $27.4 million to $12.8 million.  This includes $4 million of capital grants which counties have received since fiscal 2016. Baltimore City’s share was reduced from $5.5 million to $3.7 million, and municipalities’ share remained at $20.1 million.

The Governor’s budget included $53 million in capital grants for counties, municipalities and Baltimore City, to be distributed above the formulaic appropriation of highway user revenues. This includes $5.5 million to Baltimore City and $27.4 million to counties, distributed according to the same formula used to distribute highway user revenues, based on road mileage and vehicle registrations. This in effect increases the highway user split by 0.3 percent for Baltimore City and 1.5 percent for all other counties.

The Department of Legislative Services (DLS), in its budget analysis, recommended that the Budget Committees flat-fund the capital grants which local governments received the prior two years, in the amounts of $4 million to counties, $2 million to Baltimore City and $19 million to municipalities. They further recommended using the Governor’s proposed additional capital grant money to backfill a proposed cut to traditional/statutory formulaic highway user revenues to counties, and diverting those funds to fill gaps in the General Fund supporting the Maryland State Police.

The House voted down the DLS recommendation and instead fully supported the Governor’s proposal to provide $53 million in capital grants to local governments.

The Senate subcommittee also voted down the DLS recommendation for the fund swap. However, they reduced the funds as proposed by the Governor and voted by the House, as indicated above and in the chart below.

hur fy17
Local transportation aid in the budget: capital grants and highway user revenues (HUR)

 

Once the full Senate votes on the budget, the Senate and House will both send members to Conference Committee to reconcile the terms of both chambers’ budgets which differ, include these provisions for local transportation aid. The Conference Committee will decide how much money to provide in capital grants – and they can decide to accept the Governor’s and House proposal, the Senate proposal, or determine their own portions.

Last year, both houses agreed to the Governor’s proposal to provide capital grants of $53.6 million to local governments over and above the traditional highway user formula, including an additional $23.7 million to counties above the $4 million received the prior year. In Conference Committee, however, the grants were reduced to flat fund the “hold harmless” amounts received the prior year.

Helpful Links:

Highway User Revenues – What’s On The Table?

Local Infrastructure Fast Track for Maryland (#LIFT4MD)

Counties Call For a Local Infrastructure Fast Track 

Infrastructure Matters. Call for a #LIFT4MD & Tweet Today!

 

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

Both Chambers Pass Income Tax Overpayment Forgiveness 

It looks like counties and municipalities owing income tax reimbursements due to the Comptroller’s recent misallocations may get a break. House Bill 1433, “Local Income Tax Overpayments – Local Reserve Account Repayment – Forgiveness” passed second reader in the House today, with amendments. This bill repeals the requirement that local governments must reimburse the Local Income Tax Reserve Account for overpayments of local income tax revenue distributions made by the Comptroller. This bill allows for funds to be drawn from the Account, rather than local government budgets, to rectify errors for which they are not responsible.

The amendments require the Comptroller to repay any reimbursements already paid by counties and municipalities. The Senate has already passed the crossfile, Senate Bill 397, with this amendment.

Over this past year, due to an issue concerning misclassified addresses, the Comptroller’s Office has identified $21 million in local income tax revenues which were distributed to counties and municipalities incorrectly for tax years 2010-2014 – resulting in overpayments to some local governments and underpayments to others.
MACo supported this bill. From MACo’s testimony:

MACo supports this bill because it alleviates local governments from bearing the burden for unpredicted liabilities due to no fault of their own. Such liabilities could potentially compromise a local government’s ability to provide funds for needed programs and services.

House Looks Out For Counties In The Budget

The House Appropriations Committee treated counties very well on Friday when it voted on budget decisions. Votes concerning counties include:

The Senate Budget and Taxation Committee starts its budget decision-making process today. If the Senate makes different decisions than the House did, the budget committees will confer in conference committee to arrive at consensus decisions on these and all budgetary items.

State Reduces FY17 Revenue Projections By $35.3 Million

The Board of Revenue Estimates (BRE) voted to reduce the revenue projections for the State by $35.3 million for fiscal 2017, and increased projections for fiscal 2018 by $2.3 million. The BRE cited the Trump Administration’s civilian federal hiring freeze as a great influence on its decision.

From Comptroller Franchot’s statement:

While our economy greatly benefits from the federal workforce, we must also do everything we can to support and grow nongovernment industries and enterprises, especially in the bio-health and life sciences sector, IT and cybersecurity, and manufacturing. And we must continue our commitment to funding public schools and investing in higher education.

At the same time, we must continue to make prudent decisions that keep our state’s fiscal house in order. As this new economic forecast indicates, we don’t expect to see any major increases in employment, personal income, and wages; a continuing reminder that this economic recovery hasn’t felt like a recovery for so many hardworking Maryland families across our state.

The fiscal realities we face require us to invest in the things that we need, and forego many of the things that we simply want. This is the same principle that so many households and business owners use when planning and executing their own budgets, and we have a solemn responsibility to do the same as their elected representatives.